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THE  CAUSES  OF   THE  PANIC 
OF  1893 


BY 


W.  JETT  LAUCK 

Sometime  FeUow  of  Political  Economy  in  the  University  of  Chicago 
Adjunct  Professor  of  Economics  and  Politics  in 
Washington  and  Lee  University 


BOSTON  AND   NEW   YORK 
HOUGHTON,  MIFFLIN  AND  COMPANY 

1907 


^G^e>\ 


COPYRIGHT   1907   BY   HART,   SCHAFFNER   St  MARX 
ALL  RIGHTS   RESERVED 

Published  June  iqoy 


U3^ 


To  B. 


PREFACE 

This  series  of  books  owes  its  existence  to  the  generosity 
of  Messrs.  Hart,  Schaffner  &  Marx  of  Chicago,  who 
have  shown  a  special  interest  in  trying  to  draw  the  atten- 
tion of  American  youth  to  the  study  of  economic  and  com- 
mercial subjects,  and  to  encourage  the  best  thinking  of 
the  country  to  investigate  the  problems  which  vitally  affect 
the  business  world  of  to-day.  For  this  purpose  they  have 
delegated  to  the  undersigned  Committee  the  task  of  select- 
ing topics,  making  all  announcements,  and  awarding  prizes 
annually  for  those  who  wish  to  compete. 

In  the  year  ending  June  1,  1905,  the  following  topics 
were  assigned:  — 

1.  The  cause  and  extent  of  the  recent  industrial  progress 

of  Germany. 

2.  To  what  is  the  recent  growth  of  American  competition 

in  the  markets  of  Europe  to  be  attributed  ? 

3.  The  influence  of  industrial  combinations  upon  the  con- 

dition of  the  American  laborer. 

4.  The  economic  advantages  and  disadvantages  of  present 

colonial  possessions  to  the  mother  country. 

5.  The  causes  of  the  panic  of  1893. 

6.  What  forms  of  education  should  be  advised  for  the  ele- 

vation of  wage-earners  from  a  lower  to  a  higher 
industrial  status  in  the  United  States? 


viii  PREFACE 

7.  What  method  of  education  is  best  suited  for  men  enter- 
ing upon  trade  and  commerce? 
The  present  volume  was  awarded  second  prize. 

Professor  J.  Laurence  Laughlin, 

University  of  Chicago,  Chairman. 
Professor  J.  B.  Clark, 

Columbia  University. 
Professor  Henry  C.  Adams, 
University  of  Michigan. 
Horace  White,  Esq., 
New  York  City. 
Hon.  Carroll  D.  Wright, 
Clark  College. 


CONTENTS 

INTRODUCTION 

Plan  and  Scope  of  the  Investigation       xiii 

CHAPTER   I 

ilNESS  AND  TRADE  CONDITIONS  IN  THE  UNITED  STATES, 
1884-1890 

irst  Indications  of  a  Revival  in  Trade  and  Industry  after  the  Gen- 
eral Depression  in  Europe  and  America.  —  The  Building  of  New 
Railroads,  1886-1890.  —  Revival  in  Industry  and  Agriculture. 
—  The  Expansion  of  Interior  Trade  and  the  Growth  in  the  Con- 
suming Power  of  the  Country.  —  Increase  in  Importations  resulting 
in  a  Trade  Balance  against  the  United  States.  —  Unusual  Amount 
of  American  Securities  issued  during  the  Years  1886-1890.  — 
Acceptance  of  American  Securities  by  Foreign  Creditors  in  Pay- 
ment of  Trade  Balances.  —  Growth  of  a  Surplus  Revenue.  — 
The  Extension  of  the  Protective  System.  —  The  Adoption  of  a 
Policy  of  Increased  Government  Expenditures 1 

CHAPTER   II 

THE   SILVER   MOVEMENT   IN   THE   UNITED   STATES 

The  Fall  in  the  Value  of  Silver  after  1872.  —  The  Act  of  1878.  — 
Operation  of  the  Act  of  1878.  —  Net  Result  of  the  Act  of  1878.  — 
Causes  of  the  Act  of  1890.  —  Provisions  of  the  Act  of  1890.  —  Sig- 
nificance of  the  Act  of  1890.  —  Summary  of  the  Financial  Situation 
in  the  United  States  in  the  Autumn  of  1890 16 

CHAPTER   III 

GROWTH    OF   SPECULATION   IN    GREAT    BRITAIN   AND    BRIT- 
ISH   GAMBLING   IN   ARGENTINA 

Depression  in  British  Trade  and  Industry,  1884-1886.  —  The  Re- 
turn of  Confidence  and  the  Rapid  Extension  of  Investments,  1887- 


CONTENTS 

1890.  —  Outgrowth  of  Speculation.  —  The  Joint-Stock  Company 
Mania.  —  The  Combination  of  Breweries  and  the  Organization 
of  Trust  and  Debenture  Companies.  —  Chilean  Nitrate  Com- 
panies and  Australian  Land  Mortgage  and  Financial  Flotations. 
—  South  African  Gold-Mining  and  Diamond  Ventures.  —  The 
Turn  of  the  Speculative  Movement  toward  Argentina.  —  The 
Boom  in  Argentine  Land  Values.  —  Absorption  of  Cedulas,  or 
Land  Mortgage  Bonds,  by  European  Investors.  —  Excessive  Issue 
of  Argentine  Public  Loans.  —  The  Suspension  of  Specie  Payments 
and  the  Evil  Effects  of  a  Depreciated  and  Inconvertible  Paper 
Currency.  —  Total  Argentine  Liabilities  abroad  in  1890.  —  Brit- 
ish Capital  Commitments  in  Argentina.  —  Total  Capital  Com- 
mitments in  Great  Britain  during  the  Period  1887-1890.  —  The 
Expansion  of  Credit  Transactions  and  the  Precarious  Financial 
Situation  in  Great  Britain  in  1890 36 


CHAPTER   IV 

INDUSTRIAL  AND  FINANCIAL  CONDITIONS  IN  FRANCE  AND 

GERMANY,    1884-1890 

Trade  and  Industrial  Depression  in  France,  1884-1887.  —  Return 
of  Prosperous  Conditions  in  1887,  and  the  Organization  of  the 
Copper  Syndicate.  —  Failure  of  the  Copper  Syndicate  and  the 
Societe  des  Metaux.  —  Suspension  of  the  Comptoir  d'Escompte.  —  ' 
Absence  of  Speculation  in  France,  1889-1890.  —  The  Spread  of 
Speculation  from  Great  Britain  to  Germany.  —  German  Capital 
Commitments  in  Argentina.  —  The  Joint-Stock  Company  Mania. 
—  The  Threatened  Danger  of  a  Panic  averted  by  the  Reichs- 
bank.  —  Financial  Situation  in  March,  1890 


CHAPTER   V 

THE  PANIC   OF   1890 

The  Financial  Breakdown  in  Argentina.  —  The  Resultant  Liqui- 
dation in  Great  Britain.  —  The  Baring  Failure.  —  Measures 
adopted  by  the  Bank  of  England.  —  Decline  in  Value  of  all  De- 
scriptions of  Securities.  —  Forced  and  Voluntary  Liquidation  in 
Great  Britain.  —  The  Effects  of  Conditions  in  Great  Britain  upon 
German  Money  and  Stock  Markets.  —  The  Financial  and  Indus- 
trial Situation  in  France  during  the  Fall  of  1890.  —  The  Return  to 
the  United  States  of  American  Securities  held  in  Great  Britain, 
and  the  Consequent  Exports  of  Gold  from  the  United  States.  — 


CONTENTS  xi 

The  Low  Level  of  Bank  Reserves  in  the  United  States.  —  Severe 
Stringency  in  the  New  York  Money  Market  and  the  Issue  of 
Clearing-House  Certificates.  —  Decline  in  Stock  Values.  —  Busi- 
ness Failures  in  the  United  States  during  1890.  —  Continued 
Return  of  American  Securities  by  Great  Britain  during  the  Year 
1891  and  Exports  of  Gold  from  the  United  States 63 


CHAPTER   VI 

RECOVERY   FROM    THE    PANIC    OF   1890    AND    FINANCIAL 
CONDITIONS   IN   THE   UNITED    STATES,    1891-1893 

The  Extraordinary  Grain  Crop  of  1891  in  the  United  States.  — 
Heavy  Exports  of  Grain  from  the  United  States  in  the  Face  of  a 
European  Harvest  Shortage.  —  Imports  of  Gold  and  Recovery 
from  the  Previous  Financial  Depression.  —  Appropriations  of  the 
Fifty-First  Congress.  —  Increase  in  Circulation  of  the  Country 
through  Government  Extravagance  and  Issue  of  Treasury  Notes. 
— Increase  in  Legal-Tender  Holdings  of  New  York  Banks.  —  Le- 
gal-Tender Notes  used  in  the  Payment  of  New  York  Clearing- 
House  Balances.  —  Increased  Percentage  of  Legal-Tender  Notes 
ised  in  the  Payment  of  Customs  Duties.  —  The  Payment  of 
Government  Balances  at  the  New  York  Clearing-House  in  Green- 
vcks  and  Treasury  Notes.  —  Withdrawal  of  Foreign  Capital  and 
:ports  of  Gold  from  the  Country.  —  Presentment  of  Greenbacks 
d  Treasury  Notes  at  the  Treasury  for  Redemption.  —  Decline 
i  the  Treasury  Gold  Reserve  below  the  Statutory  Minimum,  and 
the  General  Distrust  over  the  Currency  Situation 79 


CHAPTER   VII 

THE  CRISIS  OF   1893 

The  Collapse  on  the  New  York  Stock  Market.  —  Depression  of 
Stock  Values.  —  Run  of  Depositors  upon  Interior  Banks.  — 
Withdrawal  of  Banking  Deposits  from  Eastern  Reserve  Centres. 
—  The  Resultant  Deficiency  in  New  York  Bank  Reserves.  —  The 
Stringency  in  the  Money  Market.  —  Development  of  a  Money 
Famine.  —  Issue  of  Clearing-House  Certificates.  —  Mercantile 
and  Industrial  Failures.  —  Bank  Suspensions  and  Failures.  — 
Repeal  of  the  Silver  Purchase  Clause  of  the  Sherman  Law  and 
the  Return  of  Confidence 97 


xii  CONTENTS 

CHAPTER    VIII 

THE   CAUSE   OF  THE   CRISIS   OF    1893 

The  Crisis  of  1893  cannot  be  ascribed  to  a  Continued  Operation 
of  the  Forces  which  caused  the  Panic  of  1890  in  the  United  States. 
—  Financial  and  Industrial  Conditions  in  Great  Britain,  Germany, 
and  France  during  the  Period  1891-1893  showed  a  Healthy  De- 
velopment. —  Hence  the  Crisis  of  1893  in  the  United  States  did 
not  arise  from  any  Difficulties  abroad.  —  The  Crisis  of  1893 
was  local  in  its  Occurrence  and  Cause.  —  It  was  not  due  to  an 
Extension  of  Mercantile  and  Industrial  Credits  or  to  a  Scarcity  of 
Money  in  the  United  States.  —  It  was  a  Monetary  Crisis  caused 
by  Widespread  Apprehension  as  to  the  Fixity  of  the  Gold  Standard 
of  Payments 110 

CHARTS 

I.  Percentages  of  Different  Kinds  of  Money  used  in  paying  Cus- 
toms Duties  at  New  York,  1890-1897 87 

n.  Net  Gold  in  the  Treasury  of  the  United  States,  1884-1894   .     .    93 


INTRODUCTION 

In  approaching  the  problem  of  the  causes  of  the  crisis 
of  1893,  it  is  necessary  to  adopt  a  somewhat  unusual  mode 
of  procedure,  owing  to  the  fact  that  in  November,  1890, 
three  years  previous  to  the  crisis  of  1893,  a  severe  finan- 
cial panic  was  felt  in  Great  Britain,  Germany,  and  the 
United  States. 

Such  a  breakdown  in  the  financial  world  as  that  of 
1890,  followed  by  a  more  violent  collapse  during  1893, 
suggests  a  possible  connection  between  these  two  events. 
In  order,  therefore,  to  clear  the  ground  thoroughly  before 
entering  into  a  direct  examination  of  the  causes  of  the 
crisis  of  1893,  it  is  first  necessary  to  dispose  of  the  pre- 
liminary question  as  to  the  effect,  if  any,  of  the  panic  of 
1890  upon  the  crisis  of  1893.  To  do  this  properly  requires 
the  solution  of  a  problem  involving  two  elements:  first, 
to  discover  the  causes  of  the  panic  of  1890;  and,  second,  to 
ascertain  whether  these  causes  were  still  in  operation,  even 
in  a  modified  form,  after  1890,  and  consequently  whether 
they  were  in  any  way  responsible  for  the  crisis  of  1893. 

The  working-out  of  the  first  process  in  this  problem  — 
the  inquiry  into  the  causes  of  the  panic  of  1890  —  obvi- 
ously necessitates  an  examination  of  the  financial  and 
industrial  movements,  both  at  home  and  abroad,  which 
were  developing  during  the  years  immediately  preceding 
1890,  and  which  finally  came  to  a  head  in  the  panic  of  that 
year. 


THE   CAUSES   OF   THE   PANIC 
OF   1893 

CHAPTER   I 

BUSINESS   AND   TRADE    CONDITIONS    IN    THE    UNITED 
STATES,   1884-1890 

First  Indications  of  a  Revival  in  Trade  and  Industry  after  the  General  Depres- 
sion in  Europe  and  America.  —  The  Building  of  New  Railroads,  1886-1890. 
—  Revival  in  Industry  and  Agriculture.  —  The  Expansion  of  Interior  Trade 
and  the  Growth  in  the  Consuming  Power  of  the  Country.  —  Increase  in  Impor- 
tations resulting  in  a  Trade  Balance  against  the  United  States.  —  Unusual 
Amount  of  American  Securities  issued  during  the  Years  1886-1890.  —  Accept- 
ance of  American  Securities  by  Foreign  Creditors  in  Payment  of  Trade  Bal- 
ances. —  Growth  of  a  Surplus  Revenue.  —  The  Extension  of  the  Protective 
System.  —  The  Adoption  of  a  Policy  of  Increased  Government  Expenditures. 

During  the  year  1882  there  was  a  disastrous  financial 
panic  in  France.  Two  years  later  the  United  States  expe- 
rienced a  similar  calamity.^  Out  of  the  general  depression 
following  these  two  events,  however,  there  soon  developed 
a  reactionary  movement  which,  year  by  year,  up  to  1890, 
grew  stronger  and  more  extensive  in  its  influence.  In  tak- 
ing up  the  first  step,  therefore,  in  the  preliminary  problem 
of  the  connection  between  the  panic  of  1890  and  the  crisis 
of  1893,  and  going  backward  to  trace  out  the  causes  of 
the  panic  of  1890,  the  starting-point  is  found  to  be  in  the 
United  States,  where  this  tendency  toward  a  revival  in 
trade  and  industry  first  made  its  appearance. 

Amid  the  widespread  stagnation  which  followed  the 
crisis  of  1884  in  the  United  States,  there  was  one  excep- 
tional feature  which  stood  out  prominently  and  which 

^  The  Commercial  and  Financial  Chronicle,  Financial  Review  of 
1884. 


( 


2  THE  CAUSES  OF  THE  PANIC   OF   1893 

made  itself  clearly  evident  in  the  fact  that  confidence 
in  the  value  of  railroad  property  was  never  lost.^  But 
owing  to  the  waging  of  rate  wars  between  competing  rail- 
road lines  during  the  two  years  1884-85,  and  the  diminu- 
tion in  the  volume  of  traffic  because  of  the  depression 
in  interior  trade  after  the  crisis  of  1884,  dividends  on 
railroad  stocks  were  reduced  and  in  many  cases  passed. 
Consequently  there  was  a  hesitancy  on  the  part  of  invest- 
ors in  entering  into  railroad  undertakings  of  more  than 
ordinary  magnitude.^      By  the  close  of  the  year  1885, 


*  This  fact  appears  from  an  examination  of  the  quotations  of  some 
of  the  representative  raikoad  stocks  on  the  New  York  market  before 
and  after  the  crisis  of  1884.  (The  fractional  parts  of  the  quotations 
are  omitted.) 


1884 

1886 

Stocks. 

January 

June 

December 

December 

Low 

High 

Low 

High 

Low 

High 

Low 

High 

Atch.,    Top.    and 

S.  Fe 

80 

80 

62 

73 

76 

78 

84 

86 

Chesapeake      and 

Ohio    

13 

15 

5 

10 

5 

6 

11 

13 

Chicago,  Burl,  and 

Quincy      

118 

123 

107 

117 

113 

122 

132 

138 

Chicago,  Mil.  and 

St.  Paul 

84 

94 

58 

77 

69 

81 

89 

96 

N.    Y.    Cent,    and 

Hud.  River  . . . 

110 

115 

94 

108 

83 

92 

101 

106 

Northern  Pacific   . 

18 

27 

14 

22 

16 

18 

26 

30 

Compiled  from  The  Commercial  and  Financial  Chronicle,  Financial 
Review  of  1886,  pp.  77-79. 

^  The  year  1884  was  marked  by  a  demoralizing  rate  war,  which  con- 
tinued through  the  early  half  of  1885,  and  included  within  its  influence 
the  trunk  lines  and  the  roads  west  of  Chicago.  It  was  also  especially 
.strong  in  the  East,  where  the  New  York  Central  and  Hudson  River 
Railroad  deliberately  attempted  to  drive  the  Lake  Shore  out  of  busi- 
ness. As  might  be  expected,  there  was  a  great  reduction  in  the  net  earn- 
ings of  the  railroads  on  account  of  these  conditions,  and  as  a  result  capital 
refused  to  embark  in  railroad  enterprise.  During  the  three  years  1885 
to  1887  only  13,649  miles  of  new  railroad  were  built,  in  comparison  with 
a  construction  of  28,127  miles  during  the  preceding  period  of  three 
years. 


BUSINESS  AND  TRADE  CONDITIONS  3 

however,  the  railroad  companies  had  found  it  both  prac- 
tical and  necessary  to  divide  the  traffic  and  maintain^ - 
rates. ^  A  tolerably  certain  status  in  railroad  profits  was 
thus  assured.  During  the  following  summer,  when  there 
were  indications  of  good  crops  in  the  face  of  an  active 
foreign  demand,  and  of  an  improvement  in  general  busi- 
ness and  especially  in  railroad  traffic,  confidence  in  rail- 
road enterprise  was  fully  restored  and  capital  once  more 
entered  freely  into  railroad  construction.^    _ 

In  gathering  together  their  forces  for  a  new  start  in 
railroad  undertakings,  the  efforts  of  capitalists  were  at 
first  directed  toward  the  reorganization  of  some  of  the 
old  companies.  The  main  current  of  enterprise,  however, 
soon  turned  toward  the  exploitation  of  regions  in  the 
South,  the  Southwest,  and  the  Northwest,  and  the  con- 
struction of  new  mileage  in  these  sections  was  actively 
pushed  forward.  The  lines  of  the  Atchison,  Topeka  and 
Sante  Fe,  the  Missouri  Pacific,  the  Chicago  and  Rock 
Island,  and  the  roads  leading  from  Chicago  to  the  North 
and  Northwest,  were  rapidly  extended  by  companies  pos- 
sessing strong  credit  and  capable  of  carrying  their  projects 
to  completion  with  economy  and  dispatch.  The  total 
construction  of  new  lines  during  the  five  years  beginning 
with  1886  and  ending  with  1890  was  over  39,000  miles 
or  an  increase  of  more  than  30  per  cent.,  and  of  this  total, 
19,044  miles,  or  almost  one  half,  was  built  in  the  states 
and  territories  of  the  Northwest  and  Southwest.^ 

The  significance  of  this  extraordinary  extension  of 
railroad  mileage  in  its  bearing  upon  general  industrial 
conditions  becomes  evident  at  a  glance.  Taking  the 
country  as  a  whole,  a  very  moderate  estimate  of  the  cost 

*  During  the  latter  half  of  1885  the  West  Shore  Railroad  was  absorbed 
by  its  rival  the  New  York  Central,  and  a  pool  was  organized  by  the 
trunk  lines  and  other  companies  to  distribute  the  traffic  and  maintain 
rates. 

*  The  Commercial  and  Financial  Chronicle,  Financial  Review  of  1886 
p.  1. 

'  The  total  railroad  construction  during  this  period,  and  the  distri- 


4  THE   CAUSES  OF  THE  PANIC   OF   1893 

of  railroad  construction,  including  stations,  terminals, 
tunnels,  and  rollino-stock  equipment,  could  not  have  been 
less  than  $20,000  per  mile.  The  building  of  39,000  miles 
of  railroad,  therefore,  during  the  period  1886-90  called 
for  an  investment,  in  one  way  or  another,  of  over  $780,- 
000,000,  and  the  demand  for  commodities  of  all  kinds 
flowing  from  this  enormous  outlay  of  capital  soon  made 
itself  felt  in  all  lines  of  production. 

The  iron  and  steel  industry,  which  is  usually  consid- 
ered to  be  a  barometer  of  general  industrial  conditions, 
advancing  step  by  step  with  the  progress  in  railroad  con- 
struction,   passed    through    a    period    of    unprecedented 


bution  of  the  mileage  among  the  different  states  and  territories  may 
be  readily  seen  in  the  following  table,  compiled  from  Poor's  Manual 
of  Railroads: 

RAILROAD    CONSTRUCTION    IN    THE    UNITED    STATES,    1886-1890. 


States  and  Territories. 

1886 

1887 

1888 

1889 

1890 

New  England  Group  .  . . 
Middle  Group     

43 

338 

1,288 
847 
319 

2,245 

2,481 

513 

131 

227 

1,784 

800 

7G3 

5,351 

3,209 

685 

192 

299 

900 

1,202 

1,025 

1,574 

879 

954 

92 
451 

911 

1,183 

851 

886 

662 

664 

102 

488 

Central  North  Group  — 
O.,    Mich.,    Ind.,    111., 
Wis.              

734 

South  Atlantic  Group  — 
Va.,W.Va.,N.  C.,S.  C, 
Ga.,  Fla 

1,190 

Gulf     and     Miss.     Val. 
Group  —  Ala.,     Miss., 
Tenn.,  Ky.,  La 

Southwestern     Group  — 
Mo.,  Ark.,  Tex.,  Kan., 
Colo.,  N.  M.,  I.  T.    . . 

Northwestern   Group   — 
la.,  Minn.,  Neb.,  Dak., 
Wyo.,  Mont 

Pacific    Group  —  Wash., 
Ore.,   Cal.,   Nev.,   Id., 
Ariz.,  Utah 

752 
928 
829 
645 

Total  United  States... 

8,128 

12,982 

7,028 

5,695 

5,670 

BUSINESS  AND  TRADE  CONDITIONS  5 

/  prosperity  during  the  years  1886-90.*  An  expansion  in 
\  iron  ore  and  coal  mining  quickly  followed.^  From  these 
industries  so  directly  connected  with  the  iron  and  steel 
trade,  the  revivifying  movement  spread  outward  and 
included  within  its  influence  all  branches  of  manufactur- 
ing and  extractive  enterprise.^  At  the  same  time  a  re- 
vival in  agriculture  was  clearly  in  evidence.  The  remark- 
able activity  in  railroad  construction  during  the  period 
1886-90,  as  already  seen,  was  mainly  turned  toward 
the  sparsely  settled  regions  of  the  South,  Southwest,  and 
Northwest.  The  railroad  companies  entering  these  dis- 
tricts were  in  possession  of  immense  tracts  of  land,  and 
in  order  to  exploit  the  country  and  develop  traffic,  these 
holdings,  together  with  large  areas  of  government  terri- 
tory, were  thrown  open  on  generous  terms  to  settlers.* 

^  The  rapid  increase  in  the  production  of  iron  and  steel  is  shown  in 
the  following  table  compiled  from  the  Annual  Reports  of  the  American 
Steel  and  Iron  Association: 


Iron  Fur- 

Production of 

Production 

Production  of 

Year. 

naces  m 

Pig  Iron. 

of  Bessemer 

Bessemer 

Blast. 

All  kinds. 

Steel  Ingots. 

Steel  Rails. 

Number. 

Net  tons. 

Net  tons. 

Net  tons. 

1885 

276 

4,529,869 

1,701.762 

1,074,607 

1886 

331 

6,365,328 

2,541,493 

1,763,667 

1887 

339 

7,187,206 

3,288,357 

2,354,132 

1888 

332 

7,268,507 

2,812,500 

1,552,631 

1889 

344 

8,516,079 

3,281,829 

1,691,264 

1890 

311 

10,307,028 

4,131,535 

2,091,978 

^  Annual  Report  of  the  American  Steel  and  Iron  Association,  1889, 
pp.  17,  24. 

Profits  during  the  years  1886-87  were  very  large.  The  price  of  No.  1 
pig  iron  reached  $21.50  per  ton  in  1887,  and  steel  rails  sold  as  high 
as  $40  per  ton  in  March  of  the  same  year.  Throughout  the  subsequent 
period,  1888-90,  prices  were  such  as  to  insure  good  profits. 

^  The  Commercial  and  Financial  Chronicle,  Financial  Reviews 
1886-1890. 

Statistical  Abstract  of  the  United  States,  1894,  p.  352. 

*  The  combined  land  sales  of  the  Union,  Central,  Northern,  and 
Kansas  Pacific  railroads,  together  with  the  Atchison,  Topeka  and  Santa 
Fe,  amounted  during  the  years  1886-87  to  2,696,821  acres. 

The  enormous  acreage  of  government  lands  made  available  for  agri- 


THE   CAUSES  OF  THE  PANIC   OF   1893 


This  policy  on  the  part  of  the  railroads  and  the  Federal 
Government  was  followed  by  the  influx  of  a  large  and 
industrious  population  into  the  newly  opened  districts, 
and  under  its  management  the  soil  was  quickly  brought 
under  cultivation  and  made  to  contribute  in  large  meas- 
ure to  the  agricultural  resources  of  the  country.*  The 
effect  was  clearly  visible  during  the  years  1886-90.  The 
entire  period  was  marked  by  good  crops,  profitable  prices 
for  agricultural  products,  and  by  a  healthy  and  prosper- 
ous growth  among  the  agricultural  as  well  as  the  manu- 
facturing interests. 

This  unusual  activity  in  manufacturing  and  agricultural 
operations  was  quickly  reflected  in  a  rapid  expansion  of 
trade  and  business.  Confidence  was  fully  restored  and  no 
diSiculty  was  experienced  in  securing  loans  and  discounts. 
The  banks  throughout  the  country  steadily  extended 
their  credit  operations.^    The  movement  of  freight  on  the 

culture  and  other  purposes,  and  the  close  connection  between  the  ex- 
ploitation of  the  country  and  the  building  of  railroads  is  shown  in  the 
following  table: 

TOTAL  DISPOSALS  OF  PUBLIC  LANDS,  BOTH  FOR  CASH  AND  UNDER 
THE   HOMESTEAD   AND   TIMBER   CULTURE   LAWS,   1885-88. 


States  and 

1885 

1886 

1887 

1888 

Total 

Territories 

Acres 

Acres 

Acres 

Acres 

Acres 

Northwest  . 
Southwest   . 

Pacific 

Southern.  .  . 

8,808,172 

3,827,499 

2,386,532 

579,360 

7,414,256 

7,231,625 

2,543,225 

986,501 

6,093,676 
6,622,192 
2,700,256 
1,865,841 

4,933,601 
5,509,470 
3,426,361 
2,332,289 

27,249,605 

23,190,786 

11,026,374 

6,163,991 

Total    ... 

16,001,563 

18,175,607 

17,281,965 

16,201,621 

67,660.756 

During  the  two  years  1889-90  there  was  a  decline  in  railroad  con- 
struction, and  the  mileage  built  was  more  evenly  distributed  over  the 
country  than  in  previous  years.  The  Commercial  and  Finandal  Chron- 
icle, vol.  xlvii  (December  1,  1888),  pp.  652-53. 

'  Abstract  of  the  Twelfth  Census,  1900,  p.  32.  The  Commercial  and 
Financial  Chronicle,  Review  of  1890,  p.  3. 

A  large  percentage  of  the  new  settlers  were  immigrants  from  North- 
ern Europe.    Statistical  Abstract  of  the  United  States,  1895,  pp.  355-56. 

^  There  was  never  any  severe  and  continued  stringency  in  the  money 
market  during  the  period  1886-88,  when  railroads  and  other  industries 


BUSINESS  AND  TRADE  CONDITIONS  7 

railroads  during  1886  was  largely  in  excess  of  any  pre- 
vious year,  and  with  this  before  unparalleled  record  as 
a  starting-point,  the  aggregate  tonnage  carried,  together 
with  the  gross  receipts  from  traffic  operations,  constantly 
increased  during  the  subsequent  four  years.  ^    A  similar 

called  for  a  large  amount  of  funds,  and  not  until  the  latter  half  of  1890 
was  there  any  such  difEculty  in  getting  call  loans  in  New  York  as  to 
interfere  with  the  operations  of  the  Stock  Exchange.  Throughout  this 
period,  however,  the  banks,  as  a  result  of  the  commercial  and  indus- 
trial activity,  were  greatly  increasing  their  loans  and  discounts.  This 
fact  appears  in  the  following  statement  of  the  loans  and  deposits  of 
national  banks,  taken  from  the  Reports  of  the  Comptroller  of  the  Cur- 
rency : 

LOANS  AND  NET  DEPOSITS  OF  NATIONAL  BANKS,  WITH  RATIOS 
OF  LOANS  TO  CAPITAL,  SURPLUS,  AND  NET  DEPOSITS,  AND  OF 
CASH   TO   NET   DEPOSITS,    FROM    1885   TO    1890. 


New  Tork  City. 

Total  United  States. 

Loans 
Millions 

Ratios  of 
Loans  to 
Capital, 
Surplus, 
and  Net 
Depos- 
its. 
Per  cent. 

Cash 

to  Net 

Depos- 

sits. 

Per  cent. 

Loans 
Millions 

Ratios  of 

Loans  to 
Capital, 
Surplus, 
and  Net 

Deposits. 

Per  cent. 

Cash  to 

Net 
Depos- 
its. 

Per  cent. 

Oct.      1,  1885 
Oct.      7,  1886 
Oct.      5,  1887 
Oct.      4,  1888 
Sept.  30,  1889 
Oct.      2,  1890 

236.8 
253.7 
258.0 
292.5 
303.9 
297.1 

62.3 
71.7 
70.9 
69.2 
72.4 
71.0 

36.8 
27.1 
28.0 
28.1 
25.1 
27.8 

1301.2 
1443.7 
1580.0 
1674.9 
1805.7 
1970.0 

67.7 
71.9 
73.8 
72.1 
73.2 
75.1 

21.1 
17.3 
17.6 
17.4 
15.9 
16.1 

'  The  increase  in  the  amount  of  freight  carried  and  in  the  total  gross 
earnings  of  the  railroads  of  the  country  is  shown  in  the  following  table, 
compiled  from  Poor's  Manual  of  Railroads  for  1891,  pp.  v  and  xiii: 

TOTAL  TONNAGE   AND    GROSS    EARNINGS   OF    THE    RAILROADS 
OF   THE   UNITED   STATES,    1886-1890. 


Freight 
Carried. 

Tons. 

Gross 
Earnings. 

DoUars. 

Increase  over 
preceding  year. 

Year. 

Freight 

Carried. 

Tons. 

Gross 

Earnings. 

Dollars. 

1886 

1887 
1888 
1889 
1890 

482,245,254 
552,074,752 
590,857,353 
619,165,630 
701,344,437 

829,940,836 

940,150,702 

960,256,270 

1,002,926,059 

1,097,847,428 

45,205,155 
69,829,498 

48,782,601 
28,308,277 
82,178,807 

57,371,953 
110,209,866 
20,105,568 
42,669,789 
94,921,369 

8  THE  CAUSES  OF  THE  PANIC   OF   1893 

growth  in  the  total  bank  clearings  of  the  country  was 
noticeable  and  was  especially  marked  in  the  clearing- 
houses of  the  Southern,  Western,  and  Pacific  States.' 
The  increasing  volume  of  interior  trade,  which  was  thus 
clearly  indicated,  averaged  well  in  profits  and  gave  to 
labor  steady  and  remunerative  employment.  This  fact, 
together  with  the  extraordinary  industrial  development 
and  the  increase  in  population,  added  greatly  to  the  wealth 
and  consuming  power  of  the  entire  country,  and  led  to 
a  demand  for  commodities  which  soon  overreached  the 
domestic  market  and  was  only  satisfied  by  heavy  impor- 
tations of  all  descriptions  of  goods. 

The  total  annual  value  of  imports  of  merchandise  into 
the  United  States  increased  from  $577,527,329  in  the 
year  1885  to  $789,310,409  in  1890.^  This  amazing  growth 
was  not  confined  to  any  special  class  of  goods,  but  in- 
cluded commodities  of  every  kind,  ranging  in  variety 
from  capital  instruments  to  articles  of  luxury.^  The  de- 
mand for  foreign  products,  which,  as  already  seen,  had 
reached  extraordinary  proportions  because  of  the  in- 
creased wealth  and  population  of  the  country,  was  further 
stimulated  by  British  producers  who,  after  the  year  1887, 

'  The  growth  in  the  amount  of  bank  clearings  for  the  entire  country 
as  compared  with  the  clearings  outside  of  New  York  City  was  as  follows 
{The  Commercial  and  Financial  Chronicle,  Annual  Review  for  1891, 
p.  11): 

BANK  CLEARINGS  IN  THE  UNITED  STATES.  1885-1890.    (000  omitted.) 


Year. 

Total  all. 

Outside  New  York, 

1885 
1886 
1887 
1888 
1889 
1890 

$41,474,041 
49,293,721 
51,147,529 
49,541,635 
56,175,328 
60,117,891 

$13,321,840 
15,616,891 
17,672,973 
18,441,607 
20,280,223 
22,659,283 

^  Statistical  Abstract  oj  the  United  States,  1894,  p.  73. 
*  Ibid.  pp.  228-229. 


BUSINESS  AND  TRADE  CONDITIONS  9 

were  aggressively  seeking  markets  abroad  and  were  will- 
ing to  accept  foreign  securities  in  payment  for  their  goods.* 
On  the  other  hand,  because  of  the  growth  in  wealth  and 
population  of  the  United  States,  a  larger  percentage  of 
domestic  products  was  consumed  at  home.^  The  ex- 
portation  of  grain  from  India  and  Argentina  was  aM) 
heo-inning  at  Jhis  time  to  exert  a  strong  influence  in  the 
world  market,  and, ~together  with  "good  yields  from  Euro- 
pean harvests,  lowered  the  price  of  cereals  at  Liverpool. 
The  quantity  of  American  agricultural  products  which 
were  available  for  export  was,  therefore,  lessened  in 
value. ^  The  result  was  that  the  advance  in  value  of  our 
exports,  not  only  to  Great  Britain  but  to  all  other  coun- 
tries, failed  to  keep  pace  with  the  rapid  increase  in  the 
value  of  our  imports. .  During  the  year  1887  the  excess 
of  exports  over  imports  of  merchandise  amounted,  in 
round  numbers,  to  only  twenty-three  million  dollars, 
while  the  imports  of  gold  exceeded  exports  by  thirty- 
three  million  dollars,  thus  leaving  a  trade  balance  against 
the  United  States  of  about  ten  million  dollars.  In  the  fol- 
lowing year  imports  of  gold  and  merchandise  exceeded 
exports  by  over  sixty-three  million  dollars.*  During  the 
year  1889  imports  of  merchandise  also  were  over  two 
million  dollars  greater  in  value  than  exports.^ 

During  these  same  years  the  rapid  industrial  develop- 

^  On  account  of  these  easy  conditions  of  payment,  British  goods 
found  a  favorable  market  in  this  country,  the  annual  purchases  from 
the  United  Kingdom  growing  in  value  from  $136,701,780  in  1885  to 
$186,488,956  in  1890.  Statistical  Abstract  of  the  United  States,  1894, 
p.  81. 

^  In  1880  only  17  per  cent,  of  the  total  value  of  our  agricultural  pro- 
ducts were  retained  for  domestic  consumption;  in  1889,  over  27  per 
cent,  were  consumed  at  home.  In  1880  our  consumption  of  domestic 
merchandise,  other  than  manufactures,  was  slightly  more  than  12  per 
cent,  in  value  of  our  total  production;  in  1889  we  consumed  19  percent, 
of  the  total  value  of  domestic  merchandise  produced.  Statistical  Ab- 
stract of  the  United  States,  1894,  p.  157. 

'  A.  D.  Noyes,  Thirty  Years  of  American  Finance,  pp.  121-122. 

*  Statistical  Abstract  of  the  United  States,  1894,  pp.  51,  73. 

6  Ibid.  p.  73. 


10 


THE  CAUSES  OF  THE  PANIC  OF   1893 


ment  in  the  United  States,  as  already  pointed  out,  had 
called  for  the  investment  of  an  immense  amount  of  cap- 
ital. This  capital  was  obtained  by  the  flotation  of  an  un- 
usually large  volume  of  securities.  The  railroad  companies 
in  carrying  out  their  extensive  construction  projects  during 
the  five  years  1886-90  increased  their  total  indebtedness 
about  tv70  and  one  half  billion  dollars,  and  almost  the 
whole  of  this  extraordinary  sum  was  funded  in  the  shape 
of  stocks  and  bonds.  ^  The  annual  listing  of  new  issues 
of  bonds  on  the  New  York  Stock  Exchange,  the  greater 
part  of  which  were  offered  by  the  railroads,  was  almost 
100  per  cent,  greater  in  value  in  the  year  1890  than  in  1885. 
During  the  same  time  the  annual  listing  of  new  stock 
issues  increased  in  value  over  900  per  cent.  The  value  of 
both  the  old  and  the  new  issues  listed  during  these  years 
was  as  follows :  ^ 


LISTINGS   ON  THE   NEW  YORK   STOCK   EXCHANGE,   1885-1890. 


BONDS. 

STOCKS. 

New  Issues. 

Total  Old  and 
New  Issues. 

New  Issues. 

Total  Old  and 
New  Issues. 

1885 
1886 
1887 
1888 
1889 
1890 

$103,884,000 
81,641,000 
180,386,000 
261,989,631 
206,684,000 
198,158,850 

$197,259,000 
238,097,690 
343,477,321 
511,002,218 
389,720,000 
684,867,879 

$17,783,116 
54,006,350 
48,726,791 
62,408,357 
69,721,717 

164,461,729 

$56,913,116 
329,469,350 
270,053,550 
248,228,275 
259,649,774 
437,992,330 

Commencing  with  the  year  1887  there  was  also  a  strong 
movement  toward  the  organization  of  industrial  plants 
into  joint-stock  corporations.  More  than  $500,000,000  in 
stocks  and  bonds  were  issued  by  these  combinations  dur- 
ing the  four  years  1887-90.^  In  street-railway,  gas,  electric 

*  Poor's  Manual  of  Railroads,  1891,  p.  iv. 

'  The  Commercial  and  Financial  Chronicle,  Financial  Review  for  1891, 
p.  12. 

^  Industrial  Combinations  in  the  United  States.  By  Luther  Conant,  Jr. 
Publications  of  the  American  Statistical  Association,  vol.  vii  (March,  1901) 
p.  12. 


BUSINESS  AND  TRADE  CONDITIONS  11 

lighting,  and  Western  land  development  companies,  and 
similar  fields  of  joint-stock  enterprise,  the  promoter  was 
equally  active.  Unfortunately,  no  statistics  are  available 
by  means  of  which  an  accurate  estimate  might  be  made 
of  the  total  amount  of  securities  issued  in  the  United  States 
during  the  period  1886-90,  but  from  this  activity  in  smaller 
undertakings,  together  with  the  flotations  of  the  railroads 
and  large  industrial  corporations,  some  conception  may 
be  had  of  the  immense  and  unusual  volume  of  stocks  and 
bonds  offered  to  home  and  foreign  investors. 

The  amount  of  these  securities  purchased  abroad  is 
even  more  difficult  to  estimate  than  the  total  sum  issued. 
From  the  course  of  international  trade,  as  already  pointed 
out,  it  was  clear,  however,  that  Americans  were  importing 
more  goods  than  they  could  immediately  pay  for,  and 
were  settling  their  balances  by  turning  over  to  their  for- 
eign creditors  evidences  of  debt  in  the  shape  of  stocks  and  <5 
bonds.  The  fact  of  a  constantly  decreasing  surplus  of 
merchandise  exports  over  imports  after  the  year  1886, 
which  finally  resulted  in  an  excess  of  imports  during  the 
two  years  1888-89,  plainly  indicated  that  millions  of  dol- 
lars in  American  securities,  not  only  of  the  new  issues  but 
of  the  old  listings  of  the  stock  exchanges,  were  being  ab- 
sorbed by  the  British  and  European  markets.  The  net 
importation  of  over  $33,000,000  in  gold  during  the  year 
1887  in  the  face  of  a  balance  of  more  than  $23,000,000  in 
merchandise  exports  in  favor  of  the  United  States,  also 
showed  that  in  addition  to  the  negotiation  of  heavy  loans 
and  the  flotation  of  securities  abroad,  a  large  amount  of 
our  stocks  and  bonds  were  being  quietly  bought  by  foreign 
investors  in  the  open  market.  As  a  matter  of  fact,  con- 
ditions in  Great  Britain  were  especially  favorable  for  the 
placing  of  new  loans  and  companies.  The  improvement 
in  trade  and  business  there  had  inspired  the  country  with 
confidence,  and  capital  was  obtainable  on  very  easy  terms. 
For  this  reason  and  also  because  the  bulk  of  the  increased 


12         THE   CAUSES  OF  THE  PANIC   OF   1893 

imports  into  the  United  States  during  the  years  1887-90 
came  from  the  United  Kingdom,  England  became  our 
greatest  creditor.  A  large  part  of  our  new  railroad  issues 
were  floated  in  that  country,  more  than  $100,000,000  in 
the  stocks  and  bonds  of  American  railroads  being  taken 
in  the  London  market  during  the  three  years  1887-89.^ 
British  capital  also  freely  entered  into  other  American 
industrial  undertakings  and  many  enterprises  of  strictly 
British  origin  were  incorporated  to  carry  on  operations 
in  this  country,  including  even  joint-stock  companies 
to  acquire  breweries  in  the  United  States  and  to  exploit 
the  newly  opened  districts  of  the  West  and  South.  The 
international  trade  situation,  in  short,  throughout  the 
entire  period  beginning  with  the  year  1886,  and  ending 
with  1890,  plainly  indicated,  (1)  that  this  country  was 
purchasing  larger  quantities  of  goods  abroad,  especially 
in  Great  Britain,  than  it  could  immediately  pay  for,  and 
foreign  creditors  were  accepting  payment  in  American 
securities;  (2)  that  large  loans  were  being  negotiated  by 
American  capitalists  in  British  and  Continental  markets; 
and  (3)  that  European  and  English  investors  were  not 
drawing  upon  their  interest  accounts,  but  were  investing 
their  balances  here  as  fast  as  they  accrued. 

During  this  period  there  was  another  movement  in 
evidence,  however,  which  in  its  final  consequences  was 
even  more  far-reaching  than  the  growth  in  our  indebted- 
ness abroad.  The  large  increase  in  our  imports  added 
greatly  to  the  receipts  of  the  Government  from  customs 
duties.  At  the  same  time  the  increased  consumption  of 
domestic  products  arising  from  our  expansion  in  wealth 
and  population  was  productive  of  larger  revenues  from 
internal  taxes. ^     The  exploitation  of  the  Northwest  and 

'  The  Tendon  Economist,  Commercial  History  and  Review  of  the 
Years  1887-89. 

2  The  receipts  from  internal  revenue  taxes  increased  from  $116,805,936 
in  1886  to  $142,606,705  in  1890,  the  receipts  from  import  duties  from 


BUSINESS  AND  TRADE  CONDITIONS  13 

Southwest  also  augmented  the  receipts  from  the  sale  of 
public  lands.  A  combined  result  soon  became  apparent 
in  the  accumulation  of  an  unprecedented  Treasury  sur- 
plus, which  finally  assumed  such  proportions  as  to  impede, 
by  the  absorption  of  the  circulating  medium  of  the  coun- 
try, the  movement  of  crops  and  other  commercial  and 
financial  operations.^ 

The  practical  remedy  for  the  situation  was,  of  course, 
the  reduction  of  revenue  duties  to  a  point  where  the  re- 
ceipts from  taxation  would  correspond  to  the  expenses 
of  the  Government.  It  was  impossible  to  adopt  this  policy, 
however,  because  of  a  protectionist  majority  in  the  Senate. 
In  order,  therefore,  to  get  rid  of  the  constantly  accumu- 
lating revenue  and  to  prevent  the  recurring  stringency  in 
the  money  market,  the  Secretaries  of  the  Treasury,  during 
the  three  years  1887-89,  were  forced  to  purchase  Govern- 
ment bonds,  both  at  par  and  at  a  premium,  in  the  open 
market,  to  pay  in  advance  the  interest  charges  on  Govern- 
ment obligations,  and  to  deposit  Government  funds  with 
banks.  ^ 

But  these  measures  of  relief  were  unavailing,  and  the 
disposal  of  the  surplus  revenue  soon  became  a  question 
of  practical  politics.    In  his  annual  reports  to  Congress, 

$181,471,939  in  1886  to  $229,668,584  in  1890.  Statistical  Abstract  of  the 
United  States,  1894,  p.  20. 

^  The  surplus  remaining  at  the  close  of  each  fiscal  year  after  all  the 
obligations  of  the  government  had  been  paid,  exclusive  of  such  funds  as 
that  for  the  redemption  of  the  national  bank  notes,  appeared  as  follows 
in  the  Finance  Reports,  1886-90. 


1886, 

$103,471,097 

1887, 

80,023,570 

1888, 

119,012,116 

1889, 

105,053,443 

1890, 

37,239,762 

$445,399,988 

^  As  a  result  of  this  policy  the  total  interest-bearing  debt  of  the  United 
States  was  decreased  from  $1,146,014,100  in  1886  to  $725,393,110  in 
1890.  The  cost  to  the  national  treasury  in  premium  on  bonds  amounted 
to  almost  $46,000,000.  Report  of  the  Secretary  of  the  Treasury,  1890,  pp. 
xcvi,  cxxiii. 


14         THE  CAUSES  OF  THE  PANIC   OF   1893 

Secretary  Fairchild,  of  the  first  Cleveland  administration, 
repeatedly  recommended  a  reduction  in  the  customs  du- 
ties.^ As  a  manifesto  of  party  policy  in  the  approaching 
campaign,  the  Democratic  majority  in  the  House  had 
already  passed  the  Mills  Bill,  providing  for  a  substantial 
reduction  in  the  tariff  schedules.  Shortly  afterwards  the 
Republicans  in  the  Senate  squarely  met  the  issue  by  enact- 
ing a  high  tariff  measure  and  announcing  their  deter- 
mination to  repeal  the  internal  revenue  taxes  rather  than 
sacrifice  the  protective  principle.^  During  the  ensuing  can- 
vass, this  pronounced  position  on  the  tariff  question  was 
supplemented  by  the  promises  of  the  Democratic  and  Re- 
publican party  platforms  relative  to  the  administration  of 
the  Government  finances,  the  former  supporting  a  policy 
of  retrenchment  and  economy,  the  latter  advocating  a 
more  extended  range  of  Federal  expenditure. 

The  outcome  was  the  election  of  President  Harrison. 
The  Republican  leaders,  interpreting  his  success  as  a 
popular  approval  of  their  attitude,  at  once  proceeded  to 
put  their  expressed  policy  into  practical  operation.  The 
McKinley  tariff  law  which  raised  the  average  rate  of  duty 
to  48.71  per  cent,  and  placed  sugar  and  other  productive 
sources  of  customs  receipts  on  the  free  list,  and  which  was 
framed  with  the  object  of  doing  away  with  the  surplus 
revenue,  was  passed  by  Congress  and  became  law  on  Oc- 
tober 1,  1890.  At  the  same  time  the  preliminary  steps  were 
taken  to  dispose  of  the  existing  Treasury  surplus  and  any 
further  excess,  by  means  of  an  increase  in  congressional 
appropriations.  President  Harrison,  in  his  first  annual 
message,  urged  additional  appropriations  not  only  for  the 
navy  and  for  coast  defense,  but  even  for  the  Pension  De- 
partment and  for  river  and  harbor  improvements.  Con- 
gress was  not  slow  to  respond,  and  the  aggregate  appro- 

^  Report  of  the  Secretary  o}  the  Treasury,  1887,  p.  xxxi.  Ibid.  1888, 
p.  xxvii. 

^  Taussig,  Tariff  History  of  the  United  States,  pp.  253-254. 


BUSINESS  AND  TRADE  CONDITIONS  15 

priations  authorized  by  the  Fiftieth  Congress,  which  held 
its  sessions  during  the  fiscal  years  1889-90,  were  more 
than  $61,000,000  greater  than  the  appropriations  of  the 
preceding  Congress.^ 

But  the  triumph  of  the  Republican  party  in  securing  the 
adoption  of  its  program  of  increased  expenditures  and  an 
extension  of  the  protective  system  had  not  been  attained 
without  a  costly  compromise  in  the  form  of  the  Sherman 
silver  purchase  law  which  was  enacted  by  Congress  on 
July  14,  1890.  As  a  matter  of  fact,  this  legislative  measure 
was  the  direct  outcome  of  a  movement  for  the  free  coinage 
of  silver  which  had  its  origin  more  than  twelve  years  prior 
to  the  year  1890,  and  which,  by  means  of  constant  agitation, 
had  exerted  a  strong  influence  upon  the  course  of  our 
financial  affairs.  In  order,  therefore,  to  obtain  a  complete 
understanding  of  the  financial  situation  in  the  United 
States  on  the  eve  of  the  panic  of  1890  as  well  as  to  secure 
a  proper  setting  for  the  continuance  of  our  account,  it  is 
necessary  to  review  briefly  the  silver  agitation  and  the 
effect  of  our  silver  legislation  upon  trade  and  industry 
during  the  period  1878-90.  As  a  preliminary  step  to  a  con- 
ception of  the  true  significance  of  the  silver  movement, 
a  glance  must  also  be  taken  at  the  position  of  silver  both  as 
a  commodity  in  the  international  market  and  as  a  money 
material  in  the  financial  systems  of  other  countries  at  the 
time  the  United  States  was  entering  upon  its  first  experi- 
ment in  silver  legislation. 

*  Report  of  the  Secretary  of  the  Treasury,  1891,  p.  cxii. 


CHAPTER   II 

THE   SILVER  MOVEMENT   IN   THE   UNITED   STATES 

The  Fall  in  the  Value  of  Silver  after  1872.  —  The  Act  of  1878.  —  Operation  of 
the  Act  of  1878.  —  Net  Result  of  the  Act  of  1878.  —  Causes  of  the  Act  of 
1890.  —  Provisions  of  the  Act  of  1890.  —  Significance  of  the  Act  of  1890.  — 
Summary  of  the  Financial  Situation  in  the  United  States  in  the  Autumn  of 
1890. 

The  middle  of  the  nineteenth  century  was  marked  by  the 
discovery  of  gold  in  California  and  Australia,  and  during 
the  twenty-five  years  subsequent  to  the  year  1850  there 
was  an  extraordinary  increase  in  the  world's  production 
of  that  precious  metal,  the  output  from  the  mines  during 
this  period  being  equal  in  value  to  the  total  amount  pre- 
viously extracted  from  the  time  of  the  discovery  of  America 
by  Columbus.  The  remarkable  addition  to  the  gold-supply 
during  these  years  was  also  accompanied  by  a  steady 
growth  in  the  production  of  silver.  The  percentage  of 
increase  in  the  amount  of  silver  annually  given  forth  by  the 
mines  ranged  from  25  to  50  per  cent  in  the  years  imme- 
diately following  1850,  and  went  still  higher  at  the  close  of 
the  period,  on  account  of  the  uncovering  of  rich  deposits 
in  the  State  of  Nevada.^ 

Since  gold  possesses  greater  value  in  smaller  bulk  and  is 
consequently  much  more  desirable  for  Tnonpfnry  piirposjp^ 
than  silver,  the  leadingcommercial  nations  of  the  world 
soon  began  to  avail  themselves  of  the  opportunity  offered 
bvth£_jnCTeasedI^ld-supply  to  aHd  to  their  stocksbf 
gold  and  to  substitute  gold  for  silver  in  their  currgiuy.  As 

'  The  total  amount  of  gold  and  silver  produced  in  the  world  before 
1850,  and  from  1851  to  1875  was  as  follows: 

1493-1850 $3,314,553,000  $7,348,450,000 

1851-1875 3,317,625,000  1,395,125,000 


SILVER   MOVEMENT   IN   UNITED    STATES      17 

early  as  the  year  1852  France  commenced  to  displace  her 
silver  coins  with  gold,  and  during  the  period  1852-64 
she  absorbed  in  this  way  $1,163,000,000  in  gold  and 
$345,000,000  in  silver  disappeared  from  her  circulation. 
The  Scandinavian  Governments  soon  adopted  a  policy 
similar  to  that  of  France,  and  in  1871  Germany  also  intro- 
duced a  gold  currency  in  place  of  her  previous  silver  cur- 
rency. By  the  year  1874  more  than  $270,000,000  in  silver 
coins  had  been  exchanged  by  the  German  Government  for 
gold,  and  the  surplus  stock  of  silver  thus  created  was  offered 
for  sale  in  the  open  market.  Holland  during  the  year  1873 
practically  adopted  the  gold  standard,  and  in  1874  France, 
Belgium,  Italy,  and  Greece,  the  countries  composing  the 
Latin  Monetary  Union,  suspended  the  free  coinage  of  silver 
and  limited  the  amount  of  silver  which  might  be  annually 
coined  at  the  mints  of  each  member  of  the  Union. ^ 

A  large  amount  of  silver  w^as  thus  thrown  upon  the 
market  by  the  united  action  of  commercial  nations  in  dis- 
placing their  silver  currency  with  gold.  This  surplus  was 
also  enlarged  by  t^^  ctf^arlily  I'nprpRsjng  output  of  the^ 
silver-mines.  The  resultant  excess  in  the  silver-supply  was 
for  a  number  of  years  absorbed  by  India  and  the  East, 
the  amount  of  silver  taken  by  India  alone  during  the  period 
1852-75  being  estimated  at  more  than  one  billion  dollars. 
After  the  close  of  the  Civil  War  in  the  United  States,  how- 
ever, the  exportation  of  cotton  from  India  was  greatly 
reduced,  and  at  the  same  time  the  indebtedness  of  India 
in  England,  through  loans  negotiated  by  the  Indian  Gov- 
ernment, was  largely  increased.  Consequently  India  was 
not  in  a  position  to  absorb  the  large  amount  of  silver  that 
she  had  done  in  former  years.  The  outlet  for  the  surplus 
silver  displaced  by  gold  in  the  currency  of  European 
countries  was,  therefore,  to  a  great  extent  cut  off,  and  the 
logical  outcome  of  this  large  curtailment  of  demand  soon 

*  The  gold  standard  was  adopted  by  Italy  in  1883,  thus  causing 
a  further  curtailment  of  the  demand  for  silver. 


18         THE  CAUSES  OF  THE  PANIC   OF   1893 

made  itself  evident  in  a  rapid  decline  in  the  value  of  silver. 
The  tendency  in  this  direction  was  first  noticeable  after  the 
year  1872,  and  by  1878  the  value  of  a  fine  ounce  of  silver 
had  fallen  to  $1.15,  or  17  cents  below  the  quotation  of  six 
years  earlier.  Strange  as  it  may  seem,  however,  it  was  in 
the  face  of  this  situation,  when  the  commercial  nations  of 
Europe  were  discarding  their  silver  currency  and  when  the 
value  of  silver  in  the  international  market  had  declined  to 
a  point  where  the  bullion  in  an  American  silver  dollar  was 
worth  only  89  cents,  that  this  country  entered  upon  its  first 
experiment  in  silver  legislation  by  authorizing  a  large 
annual  increase  in  the  coinage  of  silver  dollars.* 

The  possibility  of  securing  an  inflation  of  the  currency 
^of  the  United  States  by  means  of  the  coinage  of  a  cheap 
silver  dollar  appealed  strongly  to  those  persons  who  had 
opposed  the  resumption  of  specie  payments  and  who  had 
advocated  the  continuance  of  the  depreciated  legal-tender 
notes.  They  eagerly  joined  forces  with  the  mining  and 
other  interests  which  were  peculiarly  concerned  with  main- 
taining the  value  of  silver,  and  under  the  plea  that  silver 
had  been  surreptitiously  demonetized  by  the  coinage  law 
of  1873  the  agitation  for  a  cheap  currency  was  actively 
renewed.  In  December,  1876,  a  bill  for  the  free  coinage  of 
silver  was  passed  by  the  House  of  Representatives,  but 
was  unfavorably  received  in  the  Senate.  A  similar  measure 
was  again  passed  in  the  House  during  November,  1877,  by 
a  vote  of  163  to  34.  In  the  Senate,  however,  the  free  coinage 
provision  was  stricken  from  the  bill,  and  in  its  place  a 
section  was  substituted  authorizing  the  Secretary  of  the 
Treasury  to  purchase  and  coin  each  month  not  more  than 
four  million  nor  less  than  two  million  dollars'  worth  of  silver 
bullion.     The  standard  silver  dollars  coined  from  this 

*  A  complete  account  of  the  forces  leading  to  the  fall  in  the  value  of 
silver,  and  the  displacement  of  silver  by  gold  in  the  currencies  of  the  prin- 
cipal commercial  nations  after  the  year  1850,  is  to  be  found  in  J.  Laurence 
Laughiin's  History  of  Bimeiallism  in  the  United  States  (New  York,  1897, 
4th  edition),  part  ii,  pp.  109-206. 


SILVER  MOVEMENT  IN  UNITED  STATES       19 

bullion  were  to  be  a  "legal  tender  at  their  nominal  value, 
for  all  debts  and  dues  public  and  private,  except  vi^hen 
otherwise  expressly  stipulated  in  the  contract."  Silver 
certificates  of  denominations  not  less  than  ten  dollars  were 
also  authorized  and  were  to  be  issued  by  the  Secretary  of 
the  Treasury  on  the  deposit  of  silver  dollars  authorized 
by  the  Act,  and  such  certificates  were  to  be  "receivable  for 
customs,  taxes,  and  all  public  dues."  In  this  amended 
form  the  bill  was  accepted  by  the  House,  and  was  finally 
enacted  by  Congress  on  February  9S   1H7S  ovpf  PrpsiHprit_ 

Ha^s  vetoj,  Tjj?/v  fyj^^<^^    \\c\  — 

Under  the  operation  of  tne  Act  of  1878  each  Secretary 
of  the  Treasury  practically  kept  within  the  minimum 
requirements  of  the  law  and  did  not  purchase  more  than 
two  million  dollars'  worth  of  silver  per  month.  The  amount 
of  standard  silver  dollar  pieces  that  could  be  coined  from 
the  silver  bullion  purchased  by  two  million  dollars'  worth 
of  legal-tender  paper  prior  to  the  resumption  of  specie 
payments  on  January  1,  1879,  and  by  gold  after  that  date, 
varied  of  course  with  the  price  of  silver  bullion,  and 
averaged  about  two  and  one-half  million  silver  dollar 
pieces  per  month,  or  from  twenty-seven  to  thirty-four 
million  standard  silver  dollars  annually.  The  problem 
that  confronted  the  Treasury  officials  was  to  inject  this 
amount  of  silver  dollars  into  the  permanent  circulation  of 
the  country.  It  was  obvious  that  if  silver  were  permitted 
to  accumulate  in  Government  receipts  from  customs  and 
internal  revenue  taxes,  it  would  displace  a  corresponding 
amount  of  gold.  At  the  same  time,  the  Treasury  gold 
reserve  would  soon  be  exhausted  by  the  payment  of  Gov- 
ernment obligations  and  the  currency  of  the  country  re- 
duced to  a  depreciated  silver  basis. 

'  A  detailed  discussion  of  this  enactment,  as  well  as  subsequent  silver 
legislation,  is  to  be  found  in  the  Report  of  the  Monetarij  ( 'omtnission,  1898; 
F.  W.  Taussig's  The  Silver  Situation  in  the  United  Stales  (New  York, 
1893);  A.  D.  Noyes's  Thirty  Years  of  American  Finance  (New  York, 
1898);  and  J.  Laurence  Laughlin's  History  of  Bimetallism  in  the  United 
States,  referred  to  above. 


20         THE  CAUSES  OF  THE  PANIC   OF   1893 

During  the  two  years  immediately  following  the  passage 
of  the  Act,  almost  all  the  silver  coined  by  the  Government 
was  piled  up  in  the  Treasury.  The  silver  certificates  issued 
in  payment  for  bullion  were  passed  from  bank  to  bank 
until  they  found  their  way  into  the  receipts  of  the  Govern- 
ment.^ Oiily  ^  fsw  stayed  in  circulation.  At  the  close  of 
the  fiscal  year  1879,  of  the  thirty-six  million  dollars  which 
had  been  coined,  twenty-eight  million  remained  in  the 
Treasury  unrepresented  by  silver  certificates  in  circulation. 
The  danger  of  this  situation  was  enhanced  during  the  early 
half  of  the  year  1880  by  a  further  growth  in  the  Treasury 
holdings  of  silver  accompanied  by  an  even  faster  decline 
in  its  stock  of  gold.  Fortunately,  however,  the  existing 
tension  was  relieved  during  the  latter  part  of  1880  and 
the  two  years,  1881-82,  by  a  change  in  the  course  of  trade 
and  industry  following  the  resumption  of  specie  payments. 
Railroad  construction  was  pushed  forward  on  an  immense 
scale,  the  crops  were  good,  interior  trade  was  active,  and 
there  were  heavy  importations  of  gold  from  abroad  fol- 
lowed by  an  inflow  of  gold  into  the  Treasury.  Under  these 
conditions  there  was  a  large  demand  for  currency  in  small 
denominations  for  use  in  retail  transactions  and  in  "moving 
the  crops."  Secretary  Sherman  quickly  took  advantage 
of  the  situation  by  issuing  a  circular  in  September,  1880, 
offering  drafts  on  the  sub-treasuries  in  the  West  and  South, 
payable  in  silver  certificates,  in  return  for  gold  deposited 
at  the  New  York  Sub-Treasury.  This  policy  involved  the 
expense  of  transporting  silver  dollars  from  one  section  of 
the  country  to  another,  but  through  its  operation  a  large 
amount  of  silver  was  put  into  circulation,  especially  from 
the  sub-treasuries  at  St.  Louis  and  New  Orleans. 

But  the  active  period  in  industry  and  trade  during  the 

'  A  significant  indication  of  the  distrust  of  the  new  silver  issues  in  bank- 
ing circles  was  soon  made  evident  by  the  action  of  the  New  York  Clearing- 
House  Association  on  November  12,  1878,  when  the  New  York  Sub- 
Treasury  was  admitted  to  membership.  On  that  occasion  a  resolution 
was  passed  prohibiting  the  payment  of  balances  in  silver  certificates  or 
silver  dollars. 


SILVER   MOVEMENT   IN   UNITED    STATES     21 

period  1880-82  was  succeeded  by  the  usual  reactionary 
movement.  The  year  1883  was  one  of  steadily  increasing 
depression  in  financial  and  commercial  affairs.  The  num- 
ber of  small  business  transactions,  and  especially  those 
requiring  the  use  of  money,  diminished,  the  currency  of  the 
country  became  redundant,  a  large  amount  of  silver 
accumulated  in  the  banks,  and  by  the  banks  was  worked 
off  on  the  Treasury  in  the  payment  of  customs  duties.  At 
the  same  time  the  Secretary  of  the  Treasury  was  required, 
under  the  provisions  of  the  Act  of  1878,  arbitrarily  to  coin 
into  silver  dollars  and  attempt  to  put  into  circulation  two 
million  dollars'  worth  of  silver  bullion  each  month,  irre- 
spective of  the  demands  of  business  and  trade.  The  logical 
outcome  of  this  course  of  affairs  was  soon  reached.  Since 
the  banks  hoarded  the  gold  which  came  into  their  posses- 
sion and  poured  their  silver  into  the  Treasur}^  by  way  of 
the  customs  revenue,  the  opportunity  of  replenishing  the 
Treasury  holdings  of  gold  was  constantly  being  diminished. 
On  the  other  hand  a  steady  drain  upon  the  stock  of  gold 
already  accumulated  in  the  Treasury  was  caused  by  the 
annual  purchase  of  thirty  million  dollars'  worth  of  silver 
bullion,  by  the  payment  of  Government  expenditures,  and 
by  the  redemption  of  the  public  debt  and  the  demand  ob- 
ligations of  the  Government  in  the  form  of  legal-tender 
paper.  A  large  supply  of  silver  was,  therefore,  rapidly 
accumulated  by  the  Treasury,  and  at  the  same  time  its 
gold  reserves  were  steadily  reduced.  The  fear  was  soon 
openly  expressed  that  the  Government  would  be  forced  to 
suspend  gold  pa^Tiients,  and  the  alarming  nature  of  the 
situation  was  intensified  by  the  action  of  the  Sub-Treas- 
urer in  New  York  City,  who,  on  February  21,  1884,  in  a 
letter  to  the  manager  of  the  Clearing-House  Association,  in- 
timated that  it  might  be  necessary'  to  use  silver  in  pajTnent 
of  Government  balances.  This  ill-judged  hint  had  the  effect 
of  spreading  the  existing  alarm  to  foreign  investors  in 
American  securities,  who  at  once  returned  large  blocks  of 


22        THE    CAUSES   OF   THE    PANIC    OF    1893 

their  holdings  to  be  sold  on  the  American  market,  with 
the  result  that  gold  was  exported  from  the  country  and  an 
additional  demand  made  upon  the  Treasury  reserves  of 
that  metal. ^  The  climax  was  finally  reached  in  the  finan- 
cial crisis  of  May,  1884,  which,  as  already  seen,  was  suc- 
ceeded by  a  period  of  restriction  in  production  and  of 
general  stagnation  in  industry  and  trade  that  extended 
through  the  years  1884-86.^  Under  these  conditions  there 
was  a  further  accumulation  of  silver  in  the  Treasury 
attended  by  a  decline  in  its  holdings  of  gold.  The  gold 
reserve  fell  to  120  million  dollars  in  November,  1884,  and 
even  lower  in  January,  1885.  It  was,  therefore,  clearly 
evident  that  immediate  action  was  necessary  if  the  drain 
of  gold  from  the  Treasury  was  to  be  stopped  and  the 
country  saved  from  a  depreciated  silver  currency. 

On  being  confronted  with  this  serious  situation,  the  first 
step  taken  by  the  Treasury  ofiicials  was  directed  toward 
the  maintenance  of  the  existing  stock  of  gold.  Previous  to 
the  year  1884  the  large  surplus  revenue  had  made  it  pos- 
sible to  pay  off  many  millions  of  the  public  debt.  During 
September  of  that  year,  however,  this  policy  was  discon- 
tinued and  none  of  the  3  per  cent,  bonds  (then  redeemable 
at  the  pleasure  of  the  Government)  were  called  in  for  re- 
demption until  December,  1885.  For  more  than  a  year 
the  surplus  revenue,  instead  of  being  employed  in  the 
reduction  of  the  national  debt,  was  used  to  buy  silver,  and 
the  silver  dollars  coined  from  the  bullion  thus  purchased 
were  hoarded  in  the  Treasury  and  withheld  from  the 
already  redundant  circulation  of  the  country.  During 
this  period  efforts  were  also  made  to  encourage  gold  re- 
ceipts, and  the  banks  gave  moral  as  well  as  substantial 
support  to  the  exertions  of  the  Government  in  this  direction 
by  turning  over  to  the  Secretary  of  the  Treasury  in  July, 

'  During  the  fiscal  year  1884  the  excess  of  exports  over  imports  of  gold 
amounted  to  $18,250,640. 
^  See  p.  1  et  seq. 


SILVER   MOVEMENT   IN   UNITED    STATES     23 

1885,  $5,915,000  of  gold  in  return  for  fractional  silver. 
At  the  same  time  they  announced  their  intention  of  fur- 
nishing additional  supplies  of  gold  to  the  Government 
should  it  be  deemed  necessary. 

On  the  other  hand,  new  devices  were  invented  to  get 
silver  into  circulation,  bmce  tlie  issue  of  national  bank 
notes  of  smaller  denominations  than  five  dollars  had  been 
prohibited  by  the  Resumption  Act  of  1879,  the  currency 
in  one  or  two  dollar  denominations  at  tins  time  consisted 
almost  exclusively  of  United  States  notes,  or  greenbacks. 
After  June,  1885,  however,  the  issue  of  these  greenbacks 
in  denominations  less  than  five  dollars  was  stopped,  and 
■  when  the  soiled  and  torn  greenbacks  of  small  denomina- 
tions were  returned  to  the  Treasury  for  redemption,  they 
were  withdrawn  from  circulation  and  replaced  by  green- 
backs of  large  denominations.  This  process  of  retirement 
was  slow,  but  by  the  year  1886  such  a  vacuum  had  been 
created  that,  under  the  pressure  of  a  demand  for  currency 
of  small  denominations.  Congress  was  prevailed  upon  to 
authorize  the  issue  of  one,  two,  and  five  dollar  silver  cer- 
tificates. Permanent  circulation  was  thus  secured  for  a 
large  amount  of  silver,  which  took  the  place  of  the  small 
greenbacks  previously  retired  by  the  Treasury  officials. 

These  efforts  of  the  Treasury  to  maintain  its  gold  reserve 
and  provide  an  outlet  for  silver  were  supplemented  by  the 
influence  of  a  fortunate  change  in  the  course  of  business 
after  the  year  1885.  The  period  1886-90,  as  already 
pointed  out,  was  one  of  prosperity,  marked  by  a  con- 
stantly increasing  volume  of  importations  and  the  re- 
sultant accumulation,  largely  from  customs  duties,  of  an 
unprecedented  surplus  revenue.^  This  surplus  was  used 
in  paying  off  the  national  debt,  and,  as  a  consequence,  the 
amount  of  Government  bonds  available  for  the  purpose 
of  guaranteeing  the  issue  of  national  bank  notes  was 
rapidly  reduced.  At  the  same  time,  the  rate  of  discount 
'  See  footnote  1,  p.  13. 


2-i 


THE    CAUSES    OF   THE    PANIC    OF    1893 


in  the  loan  market  became  higher  as  the  result  of  better 
business  conditions,  and  the  banks  soon  found  it  much 
more  profitable  to  lend  ^heir  funds  directly  than  to  invest 
in  Government  bonds  to  be  used  as  a  basis  for  the  issue 
of  notes.  They,  therefore,  began  to  cut  down  their  note 
issues,  and  by  1890  the  amount  of  national  bank  notes 
outstanding  was  $120,000,000  less  than  in  the  year  1886.^ 
As  the  notes  thus  retired  were  of  small  denominations  a 
further  opening  was  made  for  the  use  of  silver  certificates. 
Moreover,  the  revival  in  business  and  industry  after  the 
year  1885,  owing  to  the  greater  rapidity  and  extent  of 
domestic  trade,  especially  in  the  newly  exploited  regions 
of  the  West  and  South,  brought  about  an  increasing 
demand  for  the  use  of  silver  in  the  payment  of  wages  and 
in  other  small  transactions. 

Under  these  conditions  the  efforts  of  the  Treasury 
officials  to  push  silver  into  circulation  were  attended  with 
good  results.  During  the  five  years  1886-90  the  Treasury's 
accumulations  of  silver  decreased  to  a  point  where  they 
no  longer  caused  anxiety.  Practically  all  of  the  silver 
coined  during  the  two  years  1889-90  passed  into  circula- 
tion. In  the  autumn  of  1885  there  was  also  an  upward 
movement  in  the  gold  reserve,  and  by  the  end  of  that  year 
confidence  in  the  ability  of  the  Government  to  maintain 
gold  payments  had  been  restored.  Consequently  during 
the  subsequent  period  of  five  years  there  was  a  steady 

^  The  following  figures,  taken  from  Taussig's  The  Silver  Situation  in 
the  United  Stales,  show  the  amount  of  national  bank  notes  outstanding 
(in  millions  of  dollars)  during  the  six  years  1885-1890: 


Year. 

Total  Outstanding. 

Net  Amount  (less  lawful 

money  deposited  for 

redemption). 

1885 

S15.8 

276.3 

1886 

301.5 

219.7 

1887 

272.0 

169.2 

1888 

239.4 

152.4 

1889 

202.0 

130.2 

1890 

179.8 

125.0 

SILVER   MOVEMENT   IN   UNITED   STATES     25 

inflow  of  gold  into  the  Treasury,  and  the  gold  reserve  was 
ample. 

The  danger  of  a  suspension  of  gold  payments  was  thus 
averted.  The  outcome,  however,  was  by  no  means  satis- 
factory. Only  by  the  employment  of  artificial  devices, 
such  as  the  substitution  of  one  and  two  dollar  silver  certi- 
ficates for  the  greenbacks  of  small  denominations,  had  the 
Treasury  ofiicials  been  able  to  keep  silver  in  circulation 
and  maintain  the  gold  standard  during  the  prosperous 
period  1886-90.  Even  then  their  efforts  had  been  suc- 
cessful only  because  they  had  control  of  a  large  surplus 
revenue,  which  made  it  possible  to  hold  the  silver  dollars 
and  certificates  in  the  Treasury  vaults  when  the  silver 
circulation  of  the  country  was  redundant.  This  surplus 
during  the  good  years  1886-90  aided  the  Treasury  indi- 
rectly by  creating  an  outlet  for  the  small  silver  certificates 
on  account  of  the  payment  of  the  public  debt  and  the 
consequent  reduction  in  the  national  bank  note  circu- 
lation. So  far  as  the  Treasury  was  concerned,  the  exist- 
ence of  a  surplus  revenue  during  almost  the  entire  opera- 
tion of  the  Act  of  1878  was  one  of  the  most  favorable 
factors  in  the  situation.  In  the  event  of  a  depression  of 
business  such  as  marked  the  two  years  1884-85,  or  the 
adoption  of  an  ill-considered  tariff  or  fiscal  policy  by  the 
Government  which  would  radically  cut  down  or  cause  a 
deficit  in  Government  revenues,  there  was  every  indica- 
tion that  silver  would  again  accumulate  in  the  Treasury 
and  thus  endanger  the  maintenance  of  the  gold  standard 
of  payments. 

The  policy  adopted  by  the  Treasury  of  retiring  United 
States  notes,  or  greenbacks,  of  small  denominations  had 
without  doubt  resulted  in  creating  a  vacuum  in  the  circu- 
lation which  insured  a  permanent  place  for  small  silver 
certificates.  But  the  void  thus  created  could  only  make 
room  for  a  certain  amount  of  silver,  dependent  upon  the 
action  of  the  national  banks  in  reducing  their  note  issues. 


26 


THE    CAUSES    OF   THE    PANIC    OF    1893 


If  the  Treasury  officials  transgressed  this  limitation  a 
redundancy  of  silver  in  circulation  would  be  the  result. 
Moreover,  in  its  ultimate  possibilities,  the  policy  of  retiring 
the  one  and  two  dollar  legal-tender  notes  and  reissuing 
them  in  the  form  of  greenbacks  of  large  denominations 
was,  if  anything,  more  dangerous  than  the  effect  of  the 
immediate  accumulation  of  a  large  amount  of  silver  dollars 
or  silver  certificates  in  the  Treasury.  The  greenbacks 
of  small  denominations  had  hitherto  found  lodgment  in 
the  hands  of  the  people,  had  been  used  continually  by 
them  in  the  retail  transactions  of  everyday  life,  and  con- 
sequently had  been  returned  for  redemption  only  w^lien 
they  became  too  soiled  or  damaged  to  be  of  any  further 
service.  The  greenbacks  of  large  denominations  which 
were  issued  in  their  place  were  now  held  by  the  banks  and 
were  quickly  available,  should  an  occasion  present  itself, 
for  the  purpose  of  drawing  off  gold  from  the  Treasury. 

The  net  result,  therefore,  of  the  operation  of  the  Act  of 
1878  was  not  only  to  increase  the  demand  obligations  of 
the  Government  payable  in  gold  to  the  extent  of  $378,000,- 

000  ^  (the  amount  of  silver  dollars  coined),  but  also,  by 

1  AMOUNT,   COST,  AND    AVERAGE    PRICE  OF   SILVER  PURCHASED 

UNDER    THE    ACT   OF    FEBRUARY   28,    1878,    AND    COINAGE    OF 
SILVER  DOLLARS  THEREFROM: 


Fiscal 
Years. 

Fine  Ounces. 

Cost 

Average 

Price  per 

Fine  Ounce 

Coinage  of  Silver 
Dollars. 

1878 
1879 
1880 
1881 
1882 
1883 
1884 
1885 
1886 
1887 
1888 
1889 
1890 
1891 

10,809,350 
19,248,086 
22,057,862 
19  709,227 
21,190,200 
22,889,241 
21,922,951 
21,791,171 
22,690,652 
26,490,008 
25,386,125 
26,468,861 
27,820,900 
2,797,379 

$13,023,268 
21,593,642 
25,235,081 
22,327,874 
24,054,480 
25,577,327 
24,378,383 
23,747,460 
23,448,960 
25,988,620 
24,237,553 
24,717,853 
26,899,326 
3,049,426 

$1.20 

1.12 

1.14 

1.13 

1.13 

1.11 

1.11 

1.08 

1.03 

.98 

.95 

.93 

.96 

1.09 

$8,573,500 
27,227,500 
27,933,750 
27,637,955 
27,772,075 
28,111,119 
28,099,930 
28,528,552 
29,838.905 
33,260,831 
32,718.673 
33,793,860 
35,923,816 
8,740,327 

291,272,018 

$308,279,260 

$1.05 

$378,166,793 

SILVER   MOVEMENT   IN   UNITED    STATES     27 

the  substitution  of  greenbacks  of  large  denominations  for 
small  greenbacks,  the  way  was  opened  for  quickly  deplet- 
ing the  Treasury  of  its  gold  reserve,  upon  the  maintenance 
of  which  the  payment  of  its  obligations  depended.  It  is 
true  that  the  silver  dollars  and  certificates  were  not  directly 
redeemable  in  gold,  but,  as  a  matter  of  fact,  when  the 
silver  in  circulation  became  redundant,  or  when  appre- 
hension existed  as  to  the  maintenance  of  the  gold  standard, 
silver  dollars  and  certificates,  as  already  seen,  were  poured 
into  the  Treasury  through  the  customs  receipts,  a  corre- 
sponding inflow  of  gold  was  cut  off,  and  a  process  of  re- 
demption thus  carried  out  which  was  as  effective  in  its 
operations  as  if  silver  had  been  directly  presented  at  the 
Treasury  and  gold  received  for  it.  To  the  ever-present 
possibility  of  gold  being  thus  displaced  in  the  Government 
receipts  by  silver  was  now  added  the  further  danger  that 
gold  might  be  drawn  from  the  Treasury  by  means  of  the 
greenbacks  of  large  denominations  which  were  carried 
by  the  banks  in  their  reserves.  The  maintenance  of  gold 
payments  was  therefore  imperiled  by  the  possibility  of  the 
Treasury  gold  reserve  being  lost  in  two  ways.  On  the  one 
hand,  the  additions  to  the  Treasury  supply  of  gold  through 
the  payment  of  import  duties  were  in  danger  of  being  cut 
off;  on  the  other  hand,  by  making  the  large  greenbacks 
quickly  available  to  the  banks,  an  opportunity  was 
afforded  of  draining  the  Treasury  of  its  stock  of  gold 
already  accumulated.  Under  these  conditions  it  was  clearly 
evident  that  the  ability  of  the  Treasury  to  continue  gold 
payments  during  a  period  of  business  depression  or  lack 
of  confidence  had  been  greatly  impaired. 

But  the  success  of  the  Treasury  in  keeping  silver  in 
circulation  and  warding  off  dangers  to  the  standard  during 
the  period  1886-90  was  interpreted  by  the  advocates  of 
the  free  coinage  of  silver  to  mean  that  the  Government 
could  with  impunity  greatly  increase  its  silver  obligations. 
The  agrarian  communities  of  the  West  and  Northwest, 


28        THE    CAUSES    OF   THE    PANIC    OF    1893 

which  desired  a  larger  quantity  of  money  in  circulation, 
and  the  silver-mining  states  west  of  the  Mississippi,  which 
sought  to  check  the  constant  fall  in  the  value  of  silver,  had 
never  been  satisfied  with  the  Act  of  1878,  and  had  inces- 
santly agitated  the  question  of  the  free  coinage  of  silver. 
Unfortunately  for  the  country,  the  political  complexion 
of  Congress,  after  the  presidential  election  of  1888,  enabled 
the  representatives  from  these  Western  States  to  dominate 
the  situation. 

In  the  election  of  that  year  the  Republican  candidate, 
Benjamin  Harrison,  secured  a  majority  in  the  electoral* 
college.  President  Cleveland,  however,  was  given  a  larger 
number  of  popular  votes  than  his  successful  opponent. 
Moreover,  his  administration  of  the  civil  service  had  lost 
him  many  supporters,  and  political  intrigue  in  New  York 
had  deprived  the  Democratic  party  of  the  electoral  vote 
of  that  state.  Under  these  conditions,  it  could  scarcely 
be  said  that  the  election  of  President  Harrison  was  a 
decisive  indorsement  of  the  issues  he  advocated.  Con- 
sequently, when  the  Republican  leaders  declared  that  the 
result  of  the  election  was  a  popular  verdict  in  favor  of 
protection  and  prepared  to  extend  the  protective  principle 
by  framing  the  McKinley  tariff  law,  they  encountered  not 
only  distrust  in  a  large  wing  of  their  own  party,  but  at  the 
same  time  were  confronted  with  a  practical  difiiculty  of 
vital  importance  within  Congress  itself.  The  Republican 
majority  in  the  House  at  the  opening  of  the  51st  Congress 
was  found  to  consist  of  only  eight  votes,  including  West- 
ern Representatives  who  were  lukewarm,  if  not  hostile 
on  the  tariff  question.  In  the  Senate  the  situation  from 
a  Republican  standpoint  was  even  more  unfavorable.  The 
party  majority  in  that  body  consisted  of  only  eight  Sena- 
tors, and  without  the  support  of  the  members  from  the 
silver-producing  states  of  the  West,  who  were  by  no  means 
favorably  disposed  to  an  extension  of  the  protective  system, 
the  Republicans  would  actually  be  in  the  minority.  Under 


SILVER   MOVEMENT   IN   UNITED    STATES     29 

these  conditions  it  was  at  once  evident  that  some  expedient 
must  be  devised  to  placate  the  silver  wing  of  the  party,  if 
the  proposed  tariff  legislation  was  to  be  carried  to  a  suc- 
cessful conclusion. 

At  this  juncture  Mr.  Windom,  who  was  then  Secretary 
of  the  Treasury,  and  who  was  considerably  more  of  a  poli- 
tician than  a  financier,  inaugurated  a  course  of  procedure 
which  peculiarly  emphasized  his  talents  in  the  way  of 
political  expediency.  In  his  first  annual  letter  to  Con- 
gress he  recommended  that  the  Government  should  buy 
"silver  at  the  market  price,  without  any  assignable  limit, 
and  pay  for  it  in  notes  of  the  United  States,  which  were 
to  be  redeemable  in  silver  bullion  or  in  silver  dollars  or 
gold  at  the  option  of  the  Government  or  the  holders  of  the 
notes  respectively. 

The  motive  which  prompted  this  ill-considered  recom- 
mendation was  at  once  apparent.  It  was  evidently  intended 
to  placate  the  silver  Senators  and  Representatives,  and 
to  secure  their  support  for  the  McKinley  Bill.  Every 
prudent  congressman  shrank  from  the  effect  of  such  an 
unlimited  inflation  of  the  currency.  But  practically  all 
that  could  be  done  was  to  limit  as  far  as  possible  the  in- 
jurious features  of  this  political  compromise  which  had 
been  devised  by  the  Administration.  On  June  5,  1890, 
the  House  passed  a  bill  restricting  the  issue  of  notes  to 
$4,500,000  monthly  and  making  them  "redeemable  in 
coin,  on  demand."  The  Senate,  however,  promptly  turned 
down  this  measure  and  enacted  a  flat  free-coinage  bill 
which  it  returned  to  the  House.  On  the  same  day  the 
McKinley  tariff  law  reached  the  Senate  and  that  body 
postponed  consideration  of  the  tariff  measure  until  final 
action  had  been  taken  on  its  free-coinage  bill.  The  situa- 
tion was  awkward  for  the  Administration,  as  the  majority 
vote  in  the  Senate  included,  with  two  exceptions,  every 
Senator  from  the  silver-producing  states  of  the  West  which 
Secretary  Windom  was  endeavoring  to  conciliate.     The 


30        THE    CAUSES    OF   THE    PANIC    OF    1893 

House,  however,  refused  to  accept  the  Senate  substitute,' 
and,  as  is  usual  in  such  cases,  the  Silver  Bill  was  sent  to  a 
conference  committee  of  both  branches  of  Congress.  After 
a  week  of  anxiety  among  the  promoters  of  the  Tariff  Bill, 
an  agreement  was  reached  by  the  Senate  and  House.  In 
this  amended  form  the  bill  received  the  approval  of  Presi- 
dent Harrison  and  became  law  on  July  14,  1890.^ 

Because  of  the  fact  that  the  compromise  bill  was  chiefly 
the  work  of  Mr.  Sherman,  it  became  subsequently  known 
as  the  "Sherman  Act."  It  provided  that  the  Secretary 
of  the  Treasury  should  purchase  4,500,000  ounces  of  silver 
monthly,  and  directed  him  to  pay  for  this  in  legal-tender 
paper  called  Treasury  notes,  which  were  to  be  "a  legal 
tender  in  payment  of  all  debts,  public  and  private,  except 
when  otherwise  expressly  stipulated  in  the  contract," 
were  "receivable  for  customs,  taxes,  and  all  public  dues," 
and  when  held  by  any  national  bank  were  to  be  counted 
as  part  of  its  legal  reserve.  These  notes  were  to  be  directly 
redeemable  at  the  Treasury  or  any  sub-treasury  "in  gold 
or  silver  coin"  at  the  discretion  of  the  Secretary  of  the 
Treasury,  and  as  a  guide  to  future  action  a  parity  clause 
was  added  declaring  it  to  be  "the  established  policy  of  the 
United  States  to  maintain  the  two  metals  on  a  parity  with 
each  other  upon  the  present  legal  ratio,  or  such  other  ratio 
as  may  be  provided  by  law."  After  July  1,  1891,  no  more 

^  The  statement  has  been  made  that  the  silver  law  of  1890  was  enacted 
not  because  the  silver  faction  in  the  Senate  demanded  silver  legislation 
in  exchange  for  its  vote  on  the  tariff  bill,  but  for  the  reason  that  the  failure 
to  pass  the  Sherman  Law  would  have  resulted  in  the  enactment  of  a  free- 
coinage  bill.  This  assertion,  however,  is  not  borne  out  by  the  facts.  When 
the  Senate  substituted  a  free-coinage  measure  for  the  House  Bill  the 
opportunity  was  given  to  pass  a  free-coinage  law,  but  the  House  refused. 
Moreover,  the  claim  that  a  free-coinage  bill  would  have  been  passed  if  the 
Sherman  Law  had  not  been  enacted  assumes  that  President  Harrison 
would  have  approved  a  free-coinage  bill.  Noyes,  Thirty  Years  of  Ameri- 
can Finance,  pp.  147,  148. 

^  A  summary  but  complete  account  of  the  discussion  in  Congress 
during  the  year  1890,  and  of  the  action  of  the  HouSe  and  Senate  relative 
to  the  proposed  silver  legislation,  is  to  be  had  from  an  article  entitled 
"  The  Silver  Debate  of  1890,"  by  R.  F.  Hoxie,  The  Journal  of  Political 
Economy,  vol.  i  (September,  1893),  pp.  535-587. 


SILVER   MOVEMENT   IN   UNITED    STATES     31 

silver  dollars  were  to  be  coined  than  were  necessary  for 
the  redemption  of  the  Treasury  notes.  Until  that  date, 
2,000,000  ounces  of  silver  per  month  were  to  be  coined 
into  standard  silver  dollars. 

In  comparison  with  the  Act  of  1878,  the  Sherman  Law, 
therefore,  contained  two  significant  features.  Although 
in  the  first  place,  it  did  not  repeal  but  continued  the  old 
policy  of  purchasing  silver,  yet  it  made  necessary  the 
purchase  and  maintenance  in  circulation  each  year  of  a 
larger  amount  of  silver,  since  the  Treasury  notes  issued 
under  the  operation  of  the  Act  amounted  to  about  $50,000,- 
000  annually.^  In  the  second  place  the  Treasury  notes 
thus  issued  were  made  directly  redeemable  in  coin,  and 
under  the  further  statement  that  it  was  "the  established 
policy  of  the  United  States"  to  maintain  silver  and  gold 
"at  a  parity  with  each  other,"  the  redemption  provisions 
of  the  Act  of  1890  meant  that  Treasury  notes  were  to  be 
redeemed  in  gold  as  long  as  the  Treasury'  had  any  gold  in 
its  possession.  In  addition,  therefore,  to  increasing  the 
almost  overwhelming  burden  of  silver  obligations  already 
carried  by  the  Government,  the  Sherman  Law  made  it  much 
more  difiicult  to  preserve  the  integrity  of  these  obligations 
by  providing  a  direct  means  of  redemption,  through  the 
operation  of  which  the  gold  reserves  accumulated  by  the 
Government  for  redemption  purposes  might  be  quickly 
withdrawn  from  the  Treasury'. 

Thus  had  the  silver  movement  worked  itself  out  by  the 
latter  half  of  the  year  1890.  When  its  probable  effect  is 
considered  in  connection  with  the  contemporary  state  of 

1  The  amount  of  Treasury  notes  issued  each  year  under  the  Act  of  1890 
was  as  follows: 

Fiscal  year,  July  1.  Treasury  notes  issued. 

1891  $50,577,498 

1892  51,106,608 

1893  45,531,375 

1894  8,715,521 

$155,931,002 


32        THE    CAUSES    OF   THE    PANIC    OF    1893 

international  trade  and  the  policy  of  the  Harrison  Ad- 
ministration relative  to  the  surplus  revenue,  it  is  at  once 
apparent  that  a  precarious  future  was  marked  out  for  the 
Treasury.  To  ascertain  accurately  the  nature  of  the  dan- 
gerous tendencies  at  work  it  may  not  be  amiss  briefly  to 
review  the  salient  features  of  our  story  up  to  this  time. 

The  period  1886-90  in  the  United  States,  it  will  be  re- 
membered, was  marked  by  a  rapid  and  healthy  growth 
in  trade  and  industrial  activity,  which  called  for  the  flota- 
tion of  an  extraordinary  amount  of  railroad  and  industrial 
stocks  and  bonds.  The  increasing  wealth  and  population 
of  the  country  during  these  same  years  also  led  to  immense 
importations  of  foreign  commodities,  which  were  largely 
paid  for  in  American  securities.  Through  this  willingness 
of  our  foreign  creditors  to  invest  their  balances  in  the 
United  States,  we  had  incurred  an  unusual  amount  of 
indebtedness  abroad.  This  fact  in  itself  possessed  no 
grave  elements  of  danger.  Under  ordinary  conditions, 
owing  to  the  growing  wealth  and  resources  of  the  country, 
our  indebtedness  abroad  would  have  soon  adjusted  itself 
through  the  mechanism  of  international  trade.  It  was  at 
this  point,  however,  that  other  factors  entered  in  to  cause 
serious  apprehension. 

The  revenues  of  the  Government  had  been  yielding  an 
excess  over  expenditures  since  1883,  and  because  of  the 
increased  customs  receipts  arising  from  our  heavy  im- 
portations, this  surplus  reached  extraordinary  proportions 
during  the  period  1886-90.  After  the  election  of  1888  the 
Harrison  Administration  attempted  to  get  rid  of  it  in  two 
ways :  first,  by  inaugurating  a  policy  of  increased  expendi- 
tures, and,  second,  by  enacting  the  McKinley  Tariff  Law, 
one  of  the  objects  of  which  was  to  cut  down  Government 
receipts  from  customs.  But  the  silver  wing  of  the  Repub- 
lican party,  which  held  the  balance  of  power  in  Congress, 
was  at  this  time  agitating  the  question  of  further  silver 
legislation,  and,  in  order  to  pass  the  McKinley  Law,  it  was 


SILVER   MOVEMENT   IN   UNITED    STATES     33 

first  necessary  to  reach  an  agreement  with  this  faction. 
Notwithstanding  the  fact  that  under  the  operation  of  the 
Silver  Act  of  1878  the  Treasury  had  experienced  difiiculty 
in  maintaining  gold  pajonents,  the  protectionist  leaders, 
in  return  for  the  passage  of  the  McKinley  Bill,  gave  their 
support  to  the  enactment  of  the  Sherman  Silver  Law.  This 
measure  not  only  added  a  large  annual  increment  to  the 
silver  obligations  of  the  Government,  but  also  provided  a 
direct  means  of  redemption  for  the  Treasury  notes  which 
it  authorized. 

The  dangerous  tendency  of  this  tariff  and  financial  legis- 
lation, considered  in  connection  with  the  existing  silver 
situation,  the  policy  of  increased  Government  expenditures, 
and  the  fact  of  our  indebtedness  abroad,  can  scarcely  be 
overdrawTi.  The  Government  receipts  were  to  be  reduced 
by  the  McKinley  Law,  and,  at  the  same  time,  the  funds 
already  held  by  the  Treasury  were  to  be  dissipated  by 
means  of  hea\y  expenditures.  In  the  face  of  this  rapid 
reduction  of  Government  resources,  the  demand  obligations 
of  the  Government  were  to  be  increased  $50,000,000  annu- 
ally, at  a  time  when  the  Treasury  was  laboring  under  the 
burden  of  silver  obligations  placed  upon  it  by  the  Act  of 
1878. 

Such  was  the  fiscal  policy  inaugurated  by  the  Harrison 
Administration,  and  as  a  result  of  its  adoption,  it  was  evident 
that  three  ways  had  been  thrown  open  by  means  of  which 
the  country  might  be  subjected  to  a  financial  panic  or  acute 
crisis.  In  the  first  place,  a  shock  to  credit  abroad  might 
lead  to  the  return  of  American  securities  held  by  foreign 
investors.  If  our  foreign  creditors  employed  this  means  of 
liquidation  to  any  considerable  extent,  gold  would  flow 
out  of  the  country  in  payment  of  our  indebtedness  abroad, 
a  drain  upon  the  Treasury  reserves  would  be  threatened, 
or  actually  occur,  and  would  be  followed  by  lack  of  con- 
fidence at  home  in  the  Treasury's  ability  to  maintain  gold 
payments.    In  the  second  place,  the  same  state  of  affairs 


34        THE    CAUSES    OF   THE   PANIC    OF    1893 

might  result  from  an  adverse  change  in  the  course  of  trad 
and  industry  attended  by  a  falling-off  in  Government  n 
ceipts  from  customs  and  internal  revenue  taxes.  In  thi 
event  the  Treasury  gold  receipts  might  be  reduced  to 
point  where  the  preservation  of  the  gold  reserve  would  b 
endangered.  Finally,  through  a  redundancy  of  silver  i 
circulation,  the  customs  revenue  might  be  made  up  of  a] 
increasing  percentage  of  silver  currency  which  would  db 
place  an  equal  amount  of  gold,  as  had  happened  unde 
the  operation  of  the  Act  of  1878.  If  the  payments  to  th 
Government  in  silver  continued  to  increase,  especially  unde 
a  policy  of  increased  Government  expenditure,  apprehen 
sion  would  be  felt  relative  to  the  ability  of  the  Treasury  t 
make  gold  payments.  As  a  consequence  there  would  be  . 
further  inflow  of  silver  into  the  customs.  Gold  would  prob 
ably  be  hoarded.  The  Treasury  stock  of  that  metal  wouL 
also  be  rapidly  depicted  by  the  use  of  the  large  greenback 
held  by  the  banks  and  a  financial  crisis  made  immineni 
While  the  condition  of  affairs  in  1890  did  not  give  reason  t 
believe  that  any  one  or  all  of  these  dangerous  tendencie 
were  immediately  threatening,  at  the  same  time  the  existing 
state  of  affairs  made  their  occurrence  possible.  They  wer 
all  within  the  range  of  possibility,  and  might  operate  singl; 
or  in  combination. 

This,  in  brief,  during  the  autumn  of  1890,  was  the  pre 
carious  situation  in  the  United  States  which  had  beei 
worked  out  by  the  play  of  various  industrial,  financial,  an< 
political  forces  during  the  preceding  seven  years.  Wit) 
this  state  of  affairs  before  us,  we  may  now  profitably  tun 
aside  to  glance  at  the  industrial  and  financial  development 
abroad  during  the  same  period,  for  the  purpose  of  ascer 
taining  their  possible  influence  upon  subsequent  event 
in  this  country. 


CHAPTER   III 

lOWTH  OF  SPECULATION  IN  GREAT  BRITAIN  AND  BRITISH 
GAMBLING  IN  ARGENTINA 

pression  in  British  Trade  and  Industry,  1884-1886.  —  The  Return  of  Con- 
idence  and  the  Rapid  Extension  of  Investments,  1887-1890.  —  Outgrowth 
)f  Speculation.  —  The  Joint-Stock  Company  Mania.  —  The  Combination  of 
Breweries  and  the  Organization  of  Trust  and  Debenture  Companies.  — 
Chilian  Nitrate  Companies  and  AustraUan  Land  Mortgage  and  Financial 
'lotations.  — ■  South  African  Gold-Mining  and  Diamond  Ventures.  — •  The 
Turn  of  the  Speculative  Movement  toward  Argentina.  —  The  Boom  in  Ar- 
;entina  Land  Values.  —  Absorption  of  Cedulas,  or  Land  Mortgage  Bonds, 
jy  European  Investors.  —  Excessive  Issue  of  Argentine  Public  Loans.  — 
The  Suspension  of  Specie  Payments  and  the  Evil  Effects  of  a  Depreciated  and 
nconvertible  Paper  Currency.  —  Total  Argentina  Liabilities  Abroad  in 
890.  —  British  Capital  Commitments  in  Argentina.  —  Total  Capital  Com- 
nitments  in  Great  Britain  during  the  Period  1887-1890.  —  The  Expansion 
if  Credit  Transactions  and  the  Precarious  Financial  Situation  in  Great 
Britain  in  1890. 

r  Great  Britain,  during  the  seven  years  preceding  the 
nie  of  1890,  the  trade  and  industrial  situation,  although 
ffering  in  detail,  was  practically  identical  in  its  broader 
pect  with  developments  in  the  United  States  during  the 
me  period.  The  growing  competition  of  Germany  and 
her  nations  for  the  trade  both  of  British  and  of  neutral 
iarkets,  the  high  tariffs,  bounties,  and  other  restrictive 
latures  of  the  commercial  policy  of  foreign  governments, 
Igether  with  a  falling-off  in  the  demand  for  commodities 
iv'mg  to  the  depressed  conditions  in  other  countries,  had 
nited  the  outlet  for  British  goods  during  the  four  year? 
;83-86  and  brought  about  a  sharp  decline  in  the  foreigf. 
ade  of  the  United  Kingdom.^  The  immediate  result  was 
large  over-production  in  many  lines  of  British  industry 
ising  from  the  failure  to  adjust  the  supply  of  goods  to  the 
stricted  demand.    This  excess  of  supply  was  soon  fol- 

'  The  falling-off  in  the  foreign  trade  of  Great  Britain  during  the  period 
33-86  may  be  quickly  seen  from  the  following  table  showing  the 


36 


THE    CAUSES   OF   THE    PANIC    OF    1893 


lowed  by  a  drop  in  prices  and  a  downward  tendency  in 
profits.  As  a  consequence,  efforts  were  made  to  curtail  pro- 
duction. Because  of  the  competition  of  vessel-owners  for 
cargoes,  which  was  intensified  by  the  decline  in  British 
commerce,  ocean  freight  rates  during  the  four  years  1883- 
86  were  reduced  to  a  point  where  they  were  unremunera- 
tive.  Ship-building  and  its  allied  industries  were,  therefore, 
discouraged.  At  the  same  time  lessened  activity  was  evi- 
dent in  all  other  branches  of  industry.  Mines  were  un- 
worked,  iron  furnaces  went  out  of  blast,  and  much  indus- 
trial machinery  was  thrown  out  of  employment.  Internal 
trade  decreased,  and  the  traffic  receipts  of  the  railroads 
were  greatly  reduced.*  The  consequent  depression  in  busj- 
ness  and  industry  during  the  period  1884-86  affected 
adversely  all  classes  of  the  population^  A  considerable 
number  of  laborers  were  wholly  or  partially  deprived  of 
work,  their  wages  or  purchasing  power  cut  down,  and 
another  factor  added  to  those  which  had  already  caused 
a  sharp  decline  in  the  demand  for  commodities.  Prices 
steadily  moved  downwards,  and  profits  were  reduced  to 
a  minimum.  Obviously,  under  these  conditions  investors 
were  exceedingly  cautious  in  entering  into  industrial  under- 
takings of  any  kind,  and  the  new  commitments  of  capital 

imports  and  exports  of  merchandise.  Statistical  Abstract  of  the  United 
Kingdom,  1890,  p.  47. 

VALUE  OF  THE  TOTAL  IMPORTS  AND  EXPORTS  OF  MERCHANDISE 
INTO    AND    FROM   THE    UNITED    KINGDOM 


Tears. 

Imports. 

Exports. 

Total  of  Imports 
and  Exports. 

1883 
1884 
1885 
1886 

£ 
426,891,579 
390,018,569 
.370,967,955 
349,863,472 

£ 
305,437,070 
295,967,583 
271,474,308 
268,959,463 

£ 
732,328,649 
685,986,152 
642,442,263 
618,882,935 

*  The  gross  receipts  of  the  railroads  in  the  United  Kingdom  from 
merchandise  traffic  decreased  from  £38,701,319  in  1883  to  £36,370,439 
in  1886.    Statistical  Abstract  of  the  United  Kingdom,  1890,  p.  179. 


SPECULATION  AND   GAMBLING  37 

were  small.  Funds  were  allowed  to  accumulate  in  the 
banks  until  more  attractive  prospects  for  their  investment 
were  discovered.^ 

This  state  of  affairs  prevailed  until  the  latter  half  of  the 
year  1886,  when  indications  of  a  trade  revival  grew  gradu- 
ally more  and  more  evident.  This  upward  tendency,  how- 
ever, was  spasmodic  and  uncertain,  and  failed  to  make 
itself  felt  in  many  important  branches  of  industry.  Not 
until  the  following  year,  when  British  trade  and  industry 
received  a  direct  impulse  from  the  United  States,  was  a 
sustained  movement  toward  more  prosperous  conditions 
inaugurated. 

As  a  result  of  the  extensive  railroad  building  and  the 
industrial  revival  in  the  United  States  during  the  year 
1887,  an  unusual  demand  was  made  upon  Great  Britain 
for  iron  and  steel  products,  woolen  goods,  and  all  other 
commodities  usually  purchased  by  this  country.  Up  to  the 
year  1890,  as  already  seen,  the  amount  of  British  goods 
thus  absorbed  by  the  United  States  steadily  increased. 
During  the  year  1887  India  and  the  East  also  took  a  large 
amount  of  goods  from  Great  Britain  and  continued  to  buy 
heavily  during  the  three  subsequent  years.  Moreover, 
during  the  period  1887-90  Canada,  Australia,  South  Africa 
and  other  British  colonies,  together  with  the  South  Amer- 
ican countries,  were  rapidly  building  railways  and  develop- 
ing their  natural  resources,  and  their  orders  for  locomo- 
tives, bridges,  railroad  materials,  and  capital  goods  and 
commodities  of  all  kinds  were  largely  placed  in  the  United 
Kingdom.  Under  these  conditions  prices  grew  higher, 
profits  were  increased,  and  all  branches  of  British  industry 
experienced  a  steady  and  prosperous  growth.     With  the 

^  A  full  account  of  the  condition  of  British  trade  and  industry  during 
the  period  1875-86,  together  with  a  discussion  of  the  causes  of  the  exist- 
ing depression,  is  contained  in  the  Report  of  the  Royal  Commission  on  the 
Depression  of  Trade  (6  vols.),  1886.  A  summary  of  this  report  is  to  be 
found  in  the  Journal  of  the  Royal  Institute  of  Bankers,  vol.  viii  (1887), 
pp.  84-89.  See  also  Tfw  Economist  (London),  Commercial  History,  and 
Review  (annual  supplements)  for  the  years  1884  and  1885. 


38        THE    CAUSES   OF   THE    PANIC    OF    1893 

resultant  increase  in  foreign  trade  and  ocean  freight  rates, 
ship-building  was  also  revived,  and  through  its  demand 
for  materials  an  added  impulse  was  given  to  the  iron  and 
steel  trade,  coal-mining,  and  other  subsidiary  industries.^ 
During  the  four  years  1887-90  the  internal  trade  of  Great 
Britain  was  also  active,  and  railroad  traffic  and  bank-clear- 
ings showed  a  remarkable  expansion,  the  London  Clearing- 
House  returns  for  1890  being  larger  than  in  any  previous 
year  in  its  history.^  Wages  were  good  and  labor  was  fully 
employed.  The  entire  period  1887-90,  in  brief,  was  marked 
by  a  healthy  growth  in  wealth  and  prosperity  in  Great 
Britain  which  not  only  included  within  its  influence  all 
branches  of  trade  and  industry  but  which  also  affected  in 
a  beneficial  way  all  ranks  of  society. 

Under  these  prosperous  conditions  there  was  a  quick 
return  of  confidence  and  a  rapid  extension  of  investments. 
The  over-cautious  spirit  displayed  by  the  investing  public 
during  the  two  years  1884-85  entirely  disappeared  after 
the  year  1886,  and  was  superseded  by  almost  the  opposite 
extreme.  Industrial  stocks  of  all  descriptions  were  offered 
for  sale  and  taken  with  avidity  by  the  public.  New  loans 
offered  by  foreign  governments  were  eagerly  subscribed  for 
and  foreign  securities  were  largely  accepted  in  payment 
for  the  large  amount  of  goods  exported  from  Great  Britain 
to  the  United  States,  South  America,  the  British  Colonies, 
and  other  countries.  During  the  entire  period  1887-90, 
the  volume  of  capital  commitments  by  the  British  public 

^  The  total  value  of  British  exports  and  imports  increased  from  £618,- 
822,935  in  1886  to  £748,944,115  in  1890.  The  growth  in  ship-building 
during  the  same  period  may  be  seen  from  the  fact  that  1185  vessels,  with 
a  tonnage  of  812,638,  were  constructed  in  1890,  as  compared  with  736 
vessels,  with  a  tonnage  of  331,328,  built  in  1886.  The  total  value  of  coal, 
pig-iron,  and  other  metals  produced  in  the  United  Kingdom  during  1890 
was  almost  double  the  amount  produced  during  1886. 

^  The  amounts  cleared  at  the  London  Bankers'  Clearing-House 
increased  from  £5,902,000,000  in  1886  to  £7,801,000,000  in  1890.  Rail- 
road traffic  receipts  from  merchandise  in  the  United  Kingdom  increased 
from  £36,370,439  in  1886  to  £42,220,382  in  1890. 


SPECULATION   AND   GAMBLING  39 

was  thus  increased  by  additions  from  every  available 
source  both  at  home  and  abroad.^ 

Unfortunately,  a  large  part  of  these  new  capital  commit- 
ments was  not  placed  in  safe  and  conservative  undertak- 
ings. The  steady  improvement  in  trade  and  industry,  in 
addition  to  inspiring  the  country  with  fresh  confidence, 
had  created  very  favorable  conditions  for  floating  new 
loans  and  promoting  financial  and  industrial  enterprises. 
Money  was  plentiful  and  obtainable  from  the  banks  on 
easy  terms. ^  On  account  of  the  prosperous  condition  of 
affairs,  a  considerable  percentage  of  the  population,  in- 
cluding even  the  laboring  classes,  had  been  able  to  accumu- 
late savings  which  they  were  eager  to  place  in  some  remun- 
erative investment.  Moreover,  the  successful  conversion 
of  the  national  debt  of  Great  Britain  during  the  year  1888 
had  produced  a  considerable  decline  in  the  rate  of  interest 
on  all  first-class  securities,  and  had  stimulated  the  appetite 
of  the  public  for  new  investments.  Parliament  also  had 
under  consideration  a  legislative  measure  for  the  reform 
of  the  Companies  Act  of  1862.  Promoters  were  eager, 
therefore,  to  hurry  forward  new  undertakings,  in  order  to 
take  advantage  of  the  facilities  of  the  existing  law.^  Their 
activity  in  forming  and  offering  new  enterprises  to  the 
public  was  met  by  an  increased  power  and  desire  on  the 
part  of  the  public  to  subscribe  for  them.  The  result  soon 
became  evident  in  a  departure  from  the  usual  standards 
of  investment.  The  appearance  of  this  tendency  was  coin- 
cident with  the  revival  of  trade  during  the  latter  half  of 
1886.  During  the  subsequent  period  of  four  years,  it  de- 
veloped into  a  widespread  speculative  movement  which 
embraced  many  enterprises  of  a  questionable  character. 

*  "  Our  New  Investments  in  1890,"  The  Economist  (London),  Decem- 
ber 27,  1890,  pp.  1627-28. 

'  ^  The  average  minimum  rate  of  discount  charged  by  the  Bank  of 
England  was  sf  per  cent  for  1887,  31  for  1888,  and  3|  for  1889.  During 
many  months  of  these  years  the  rate  dropped  as  low  as  2  per  cent. 

^  "New  Loans  and  New  Companies  for  1888,"  The  Economist  (Lon- 
don), vol.  xlvi  (December  8,  1888). 


40 


THE    CAUSES    OF   THE   PANIC    OF    1893 


The  first  evidences  of  speculation  became  manifest  in  a 
mania  for  organizing  private  business  concerijs  into  joint- 
stock  companies.  During  the  year  1886  alone  110  such 
conversions  were  made.  This  movement  gained  strength 
during  the  following  year,  and  by  1888  it  had  developed 
into  a  craze,  which  continued  throughout  1889  and  the 
first  seven  months  of  the  year  1890.  During  the  entire 
period  1886-90,  12,068  new  joint-stock  companies  were 
registered  in  Great  Britain,  with  a  total  nominal  share 
capital  of  more  than  one  billion  pounds.  The  number  of 
companies  registered  each  year,  together  with  their  nominal 
capitalization,  was  as  follows  :  ^ 

COMPANIES    REGISTERED    IN    THE    UNITED    KINGDOM    DURING 
THE   PERIOD    1886-1890. 


Years. 

Total  Number  of 
Companies. 

Total  Nominal  Share 
Capital. 

1886 
1887 
1888 
1889 
1890 

1,891 
2,050 
2,550 

2,788 
2,789 

£ 
145,850,702 
170,172,674 
353,781,594 
236,520,674 
234,563,237 

Total 

12,068 

1,140,888,881 

Some  of  these  new  companies  represented  legitimate 
industrial  undertakings.  Others  were  of  a  more  or  less 
uncertain  character,  and  were  the  outcome  of  the  over- 
confident and  optimistic  attitude  of  promoters.  The  con- 
version of  private  breweries  into  joint-stock  companies 
was  typical  of  the  latter  class  of  ventures.  During  the  four 
years  1887-90,  the  activity  of  promoters  in  this  direction 
overran  all  reasonable  bounds.  New  brewery  companies 
were  organized,  and  private  concerns  which  were  already 
doing  business  in  Great  Britain  were  combined  into  large 
corporations.     Moreover,  during  the  two  years  1889-90, 

•  Statistical  Abstract  of  the  United  Kingdom,  1890,  p.  183. 


SPECULATION  AND  GAMBLING  41 

the  movement  was  extended  to  include  similar  companies 
which  purchased  and  operated  breweries  in  Canada,  the 
United  States,  South  America,  South  Africa,  and  other 
foreign  countries.  i\.s  a  result  of  these  promotions  the 
element  of  good-will  and  the  prospective  earning  power 
of  the  business  in  the  future  were  heavily  capitalized. 
Most  of  the  companies,  in  fact,  were  floated  under  condi- 
tions of  over-capitalization  and  a  large  proportion  of  the 
stock  issued  went  into  the  hands  of  promoters  and  under- 
writers and  other  persons  aiding  in  the  organization.  De- 
spite this  fact,  these  speculative  securities  were  eagerly 
taken  by  the  public,  and  in  many  cases  during  the  early 
development  of  the  movement  the  allotment  of  stock  for 
sale  was  over-subscribed.  During  the  entire  period  1887- 
90,  more  than  £100,000,000  worth  of  brewery  stocks  was 
absorbed  by  British  investors  and  speculators.* 

The  speculative  movement,  however,  included  com- 
panies of  a  much  more  doubtful  character  than  the  brewery 
flotations.  Millions  of  pounds  were  subscribed  for  a  multi- 
tude of  diverse  undertakings,  the  prospects  of  which  in 
most  cases  were  decidedly  questionable.  Companies  were 
even  organized  to  promote,  underwrite,  and  speculate  in 
the  stocks  of  other  companies.  These  concerns  were  popu- 
larly termed  "trust  and  investment  companies."  Their 
capital  stock  was  issued  in  small  shares,  and  the  effect  of 
their  organization  was  greatly  to  encourage  speculating 
and  gambling  among  persons  of  limited  means.  Many  of 
them  were  organized  for  general  speculative  purposes,  and 
their  power  of  selecting  and  acquiring  stocks  was  unre- 
stricted. Others  were  floated  for  the  purpose  of  dealing  in 
special  securities,  such  as  municipal  gas  and  water  com- 
panies, Spanish  and  South  American  railway  issues,  or 

•  ^  This  estimate  is  based  on  the  returns  given  The  London  Economist 
in  its  annual  reviews  of  commerce  and  finance.  For  a  full  account  of  the 
movement  for  converting  breweries  into  joint-stock  companies,  see  an 
article  entitled  "  Brewerj'  Companies  as  Investments,"  Tlie  Economist, 
vol.  xlviii,  September  6,  1890,  p.  1137. 


42        THE    CAUSES    OF    THE    PANIC    OF    1893 

mining  and  other  stocks.  The  greater  number  of  these 
investment  companies,  however,  relied  principally  for  their 
gains  on  the  promotion  and  underwriting  of  new  compa- 
nies. The  public  was  deluded  by  the  issue  of  prospectuses 
which  contained  alluring  descriptions  of  new  ventures, 
and  in  which  reputable  business  men,  peers,  and  members 
of  Parliament  were  paraded  as  directors.*  This  policy 
during  the  time  of  active  demand  for  investments  met 
with  large  profits,  since  there  seemed  to  be  no  limit  to 
the  credulity  of  the  public.  On  the  other  hand,  it  was 
evident  that  if  for  any  reason  there  should  be  a  decline  in 
the  support  of  speculators  and  investors,  heavy  losses  would 
be  encountered,  for  the  reason  that  the  funds  of  the  trust 
companies  would  be  tied  up  in  a  large  mass  of  undigested 
securities  which  the  public  would  refuse  to  absorb.^ 

Great  activity  was  thus  displayed  during  the  period 
1887-90  in  promoting  financial  and  industrial  undertakings 
of  a  speculative  character,  the  prospects  of  which  were 
based  upon  the  future  conditions  of  industry  and  trade  in 
the  United  Kingdom  and  the  more  advanced  commercial 
nations.  The  main  current  of  speculation,  however,  turned 
toward  the  backward  and  newly  opened  countries  of  the 
world,  where  the  risks  of  investment  were  undoubtedly 
greater,  but  at  the  same  time  the  hope  of  reward  corre- 
spondingly high.  During  the  two  years  1887-88,  a  land 
boom  which  had  its  origin  in  a  silver-mining  craze  was  in 
progress  in  Australia.    As  a  result  of  appeals  for  support, 

'  "Some  of  them  [members  of  Parliament]  got  their  living  by  this 
participation  in  new  companies.  In  the  directory  of  joint-stock  com- 
panies it  may  be  seen  that  26  members  of  the  House  of  Commons  were 
directors  in  21S  companies;  23  members  of  the  House  of  Lords  were 
directors  in  122  companies,  of  which  85  pay  dividends,  26  have  no  net 
income,  and  11  were  new  in  January,  1890.  One  member  of  the  House 
of  Commons  estimated  that  during  the  three  years  1887-89  180  millions 
had  been  drawn  from  the  pockets  of  investors  by  the  bubbles."  "The 
Crisis  of  1890,"  Max  Wirth,  Journal  of  Political  Economy,  vol.  i  (March, 
1893),  p.  230. 

^  "  New  Securities  offered  in  London  in  1889,"  The  Economist,  vol. 
xlviii  (December  14,  1889). 


SPECULATION  AND  GAMBLING 


43 


the  British  pubHc  invested  large  sums  in  Australian  mines. 
Investment  and  financial  companies  were  also  organized 
to  speculate  in  Australian  real  property  and  mortgages. 
During  the  period  1886-90,  many  new  companies  of  doubt- 
ful prospects  were  also  launched  in  Great  Britain  for  the 
purpose  of  exploiting  Chilean  nitrate  deposits.  Moreover, 
mining  ventures  in  foreign  countries  came  in  for  a  large 
share  of  speculation.^  During  the  five  years  1885-89, 
1386  companies,  showing  a  nominal  capitalization  of 
£181,569,545,  were  registered  in  Great  Britain  for  the  pur- 
pose of  exploring  and  developing  mineral  lands. ^  Of  this 
class  of  flotations  gold-mining  issues  were  the  most  numer- 
ous. The  volume  of  gold-mining  shares  offered  for  sale  and 
absorbed  by  the  public  increased  each  year.  From  the 
accompanying  table,  showing  the  geographical  distribution 
of  gold-mining  ventures  registered  in  Great  Britain  during 
the  three  years  1887-89,  it  will  be  seen  that  Africa  supplied 


1889. 

1888. 

1887. 

Countries. 

No. 

Nominal 

No. 

Nominal 

No. 

Nominal 

of 

Capitaliza- 

of 

Capitaliza- 

of 

Capitaliza- 

Cos. 

tion. 

Cos. 
79 

tion. 

Cos. 

tion. 

Britain 

58 

£3,100,400 

^,836,325 

63 

£3,476,200 

Europe 

32 

2,252,850 

45 

6,556,070 

23 

1,736,000 

Asia 

17 

1,913,100 

14 

1,785,000 

9 

1,562,511 

Africa 

145 

16,651,975 

73 

10,533,205 

42 

4,760,500 

N.  America 

66 

9,390,200 

84 

16.531,000 

67 

12,298,830 

S.  America 

32 

4,658,400 

31 

6,858,600 

13 

2,660,000 

Australia 

New  Zealand 

28 

3,048,500 

39 

4,563,200 

52 

7,508,000 

Total 

378 

41,015,425 

365 

52,663,400 

269 

34,002,041 

*  For  a  more  complete  discussion  of  the  activity  of  British  speculators 
in  promoting  companies  to  operate  in  new  and  undeveloped  countries, 
see  "  The  Crisis  of  1890,"  by  Max  Wirth,  Journal  of  Political  Economy, 
vol.  i  (March,  1893),  pp.  225-26.  Also  "Speculation  in  Australia  and 
Effect  on  England,"  The  Economist  (London),  vol.  xlvii  (May  5,  1888), 
pp. 564-65. 

^  "The  Growth  of  Speculation  in  Mining  Shares,"  The  Economist 
(London),  vol.  xlviii  (January  11,  1890),  p.  369. 


44         THE  CAUSES  OF  THE  PANIC   OF   1893 

more  than  twice  as  many  projects  of  this  character  as  any 
other  division  of  the  globe. ^ 

The  greater  majority  of  the  South  African  gold-mining 
companies  were  floated  at  high  prices  by  promoters  and 
underwriters  who,  by  a  manipulation  of  the  markets  in 
South  Africa  and  London,  derived  large  profits  from  their 
sale.  The  shares  were  generally  quoted  at  small  amounts, 
usually  at  less  than  one  pound  each,  and  when  the  com- 
panies were  not  officially  recognized  by  being  listed  on  the 
London  Stock  Exchange,  their  stocks  were  offered  for  sale 
by  outside  operators.  As  in  the  case  of  the  investment  com- 
panies, every  facility  was  furnished  to  persons  of  small 
resources  to  gratify  their  gambling  proclivities.  Large 
amounts  of  stock  were  absorbed  by  the  public,  and  under 
the  stimulus  of  heavy  speculation  premiums  on  shares  rose 
to  an  unreasonable  height,  ranging  from  50  to  5000  per 
cent.^  During  the  same  years  that  this  gambling  in  mining 
shares  was  in  progress,  a  similar  movement,  equal  in  inten- 
sity but  less  widespread  in  its  influence,  was  also  maintained 
in  South  African  diamond  properties.^  Furthermore,  in 
the  autumn  of  1889,  when  the  public  seemed  inclined  to 
lessen  its  commitments  in  gold-mining  and  diamond  shares 
until  a  larger  measure  of  the  brilliant  promises  of  the  pro- 
moters had  been  brought  to  fruition,  professional  opera- 
tors turned  their  attention  to  the  flotation  of  land  prospect- 
ing and  exploration  companies.  As  a  consequence,  a  large 
portion  of  the  speculative  public,  in  defiance  of  reason  and 
common  sense,  followed  their  lead,  and  the  gambling  in 
African  securities  continued,  but  with  abated  force,  during 
the  first  half  of  the  year  1890. 

*  The  London  Economist.  Unfortunately  figures  are  not  available  for 
showing  the  number  of  companies  of  local  origin,  the  shares  of  which 
came  in  for  the  largest  amount  of  speculation.  The  above  table,  although 
it  falls  short  of  giving  the  true  condition  of  affairs,  furnishes  sufficient  data 
as  to  the  magnitude  of  the  speculation  in  African  gold-mining  stocks. 

'  "The  South  African  Diamond  Industry,"  The  Economist  (London), 
vol.  xlv  (March  10,  1888),  p.  10. 

'  "  African  Prospecting  Companies,"  The  Economist  (London),  vol. 
xlvii  (October  26,  1889),  p.  1538. 


SPECULATION  AND   GAMBLING  45 

But  British  promoters  and  speculators  did  not  confine 
their  operations  to  Africa  and  Australia.  The  countries  of 
South  and  Central  America  came  in  for  an  even  greater 
share  of  exploitation.  Mention  has  already  been  made  of 
Chilean  nitrate  companies.  As  a  result  of  the  policy  of 
British  exporters,  during  the  period  1887-90,  in  accepting 
payment  of  trade  balances  in  foreign  securities,  railroad 
projects  in  Uruguay,  Chile,  Mexico,  and  Brazil  were  also 
largely  supported  by  British  capital.  The  outlay  in  these 
countries,  however,  was  insignificant  in  comparison  with 
British  capital  commitments  in  Argentina.  As  early  as  the 
year  1875,  the  attention  of  Europe  had  been  attracted  by 
the  prospect  of  securing  large  profits  from  the  development 
of  the  rich  natural  resources  of  the  River  Plate  territory. 
Owing  to  the  unsettled  conditions  of  political  affairs  in 
Argentina,  however,  and  the  cautious  spirit  which  pre- 
vailed among  European  investors,  no  decisive  steps  were 
taken  in  that  direction  until  the  early  eighties,  when  an 
extended  boom  in  land  values  had  its  inception  in  the 
southern  provinces  of  that  country. 

The  boom  in  land  values  in  Argentina  was  the  direct 
outcome  of  the  reclamation  of  large  tracts  of  rich  territory 
from  the  southern  Indian  tribes  by  a  series  of  Government 
expeditions  extending  through  the  years   1876-80.*     In 

'  At  the  time  of  the  advent  of  the  Avellinda-Alsine  party  to  power  in 
Argentina  in  1876,  Indian  tribes  reigned  supreme  over  the  vast  areas  of 
territory  which  extended  from  the  southern  boundary  of  the  province 
of  Mendoza  to  the  Straits  of  Magellan.  The  Minister  of  War,  Alsine, 
organized  expeditions  against  them  for  the  purpose  of  driving  them 
southward  and  thus  preventing  their  foraging  trips  into  the  settled  re- 
gions of  the  country.  After  the  death  of  Alsine  in  1878,  a  regular  war  was 
organized  against  the  Indians  and  those  who  escaped  death  or  slavery 
were  swept  into  Patagonia.  As  the  result  of  this  policy,  the  Government 
soon  found  itself  in  possession  of  a  large  extent  of  territory,  for  the 
exploitation  of  which  it  desired  to  attract  capital  and  labor. 

An  excellent  account  of  this  period  in  the  financial  history  of  Argen- 
tina is  to  be  found  in  an  article  entitled  "  Argentina  —  Her  Past  and  Pre- 
sent," by  John  Proctor,  The  Bankers'  Magazine  (London),  vol.  li  (March, 
1891),  pp.  461-65.  See  also  Spanish  American  Republics,  Theodore 
Child  (New  York,  1891),  pp.  326-12. 


46         THE  CAUSES  OF  THE  PANIC  OF  1893 

order  to  facilitate  the  occupation  of  these  lands,  the  Argen- 
tine Government  offered  liberal  terms  to  purchasers.  The 
payment  for  lands  taken  up  were  allowed  to  extend  over 
a  series  of  years,  the  title  being  given  on  the  receipt  of  a 
certain  sum  down.  Notes  of  the  purchaser  were  accepted 
for  the  outstanding  amount.  To  provide  capital  for  the 
development  of  the  land  an  additional  scheme  was  devised, 
consisting  of  a  system  of  National  and  Provincial  Mort- 
gage Banks. ^  These  banks  acted  as  intermediaries  or 
agents  between  landowners  wishing  to  mortgage  their 
property  and  people  who  were  willing  to  lend  their  money 
on  landed  security.  The  landholder  who  wished  to  secure 
a  loan  deposited  his  titles  at  a  mortgage  bank  and  the  bank 
made  a  valuation  of  his  estate,  and  cedulas  or  bonds  of  the 
bank  were  then  issued  to  the  landowners  up  to  half  the 
value  of  his  property.  These  bonds  carried  a  certain  rate 
of  interest  for  which  the  landowner  was  responsible  until 
his  titles  were  redeemed  by  an  annual  rate  of  amortization 
of  the  amount  borrowed  from  the  bank.  Funds  were  real- 
ized by  the  landowner  through  the  sale  of  the  bonds  or 
cedulas  in  the  open  market.  The  payment  of  the  interest 
charges  was  guaranteed  to  the  purchaser  by  the  banks, 
and  the  ultimate  redemption  of  the  bonds  was  guaranteed 
by  the  state  and  provincial  governments.  Persons  who 
were  non-residents,  and  who  had  no  means  of  verifying 
the  security  of  any  particular  land  investment  were  thus 
enabled  to  become  lenders  on  Argentine  real  estate.^ 

In  outward  form,  this  was  a  most  useful  scheme,  and 
cedulas  were  to  all  appearances  as  sound  securities  of  their 
kind  as  could  have  been  devised.  The  system  had  many 
serious  defects,  however,  and  the  sequel  showed  that  its 
adoption  amounted  almost  to  a  curse  to  the  country 
through  the  stimulus  it  gave  to  insane  land  speculation. 

^  The  National  Mortgage  or  Hypothecary  Bank  was  operated  by 
the  National  Government;  the  Provincial  banks  were  under  the  control 
of  the  Government  of  the  Province  of  Buenos  Ayres. 

^  "The  Argentine  Crisis  —  Its  Development,"  Henry  B.  CoUander, 
The  Fortnightly  Review,  vol.  liv  (1899),  p.  441. 


SPECULATION  AND  GAMBLING  47 

Persons  who  could  get  together  a  suflScient  amount  to 
pay  the  first  installment  on  the  land  purchased  from  the 
Government,  secured  their  titles,  which  they  then  pledged 
to  the  mortgage  banks  for  as  large  an  amount  as  they  could 
obtain.  With  these  funds  payments  were  made  to  cover 
further  installments  on  the  land  as  they  fell  due,  until  the 
land  could  be  sold  at  an  enhanced  price  consequent  upon 
the  general  rush  for  land  investment.  The  original  pur- 
chaser then  moved  onward  and  repeated  the  same  opera- 
tion. As  a  result,  land  constantly  rose  in  value,  and  as  no 
restriction  had  been  placed  on  the  power  of  the  banks  to 
issue  cedulas,  loans  were  freely  made  on  a  boom  basis. 

In  the  second  place,  the  legitimacy  of  the  cedulas  issued 
presupposed  rigorous  honesty  on  the  part  of  the  banks  and 
the  Government.  As  a  matter  of  fact,  however,  Argentina 
was  honeycombed  with  corruption.  A  coterie  of  politicians 
and  their  henchmen  had  complete  control  of  the  national 
and  provincial  governments,  and  under  the  guise  of  politics 
carried  on  a  scramble  for  loot.  It  was  therefore  an  easy 
matter  for  a  supporter  of  the  party  in  power,  or  a  member 
of  the  political  ring,  to  obtain  loans  on  worthless  property. 
Fraudulent  and  fictitious  valuations  were  made  by  the 
banks  and  large  amounts  of  the  cedulas  issued  rested  upon 
no  real  basis  of  value.* 

The  issues  of  national  and  provincial  cedulas  up  to  the 
year  1887  were  comparatively  moderate.  After  that  date, 
under  the  combined  influence  of  private  speculators.  Gov- 
ernment officials,  and  politicians,  the  land  boom  was  rapidly 
extended  and  clever  financiers  found  a  market  for  the  sale 
of  cedulas  in  Great  Britain  and  on  the  Continent.  Foreign 
investors  seemed  to  be  seized  with  a  mania  for  this  form  of 
security.  Series  after  series,  from  A  to  P,  were  issued  by  the 
banks  and  quickly  absorbed  by  credulous  Europeans,  who 
were  ignorant  of  the  true  state  of  affairs  and  who  argued 

1  "  Gaucho  Banking,"  W.  R.  Lawson,  The  Bankers'  Magazine  (Lon- 
don), vol.  li,  January,  1891,  pp.  33-52. 


48         THE   CAUSES  OF  THE  PANIC   OF   1893 

that  the  cedulaswere  a  better  investment  than  Government 
bonds  for  the  reason  that  in  addition  to  the  guarantee  of 
the  state  and  provincial  governments  they  were  backed  up 
by  real  estate.^ 

European  investors,  however,  did  not  limit  their  activ- 
ities to  the  purchase  of  cedulas.  The  Argentine  Government 
was  besieged  by  European  promoters  and  financiers  for 
concessions  to  construct  railroads,  docks,  waterways, 
municipal  improvements,  and  every  description  of  public 
enterprise.  Many  of  these  projects  were  undoubtedly  of 
a  legitimate  character,  and  necessary  to  the  development 
of  the  country.  But  the  movement  in  this  direction  soon 
exceeded  all  reasonable  bounds.  Railroads  were  built 
which  could  not  pay  operating  expenses  for  years  to  come. 
Other  industrial  undertakings  were  entered  into  under 
the  allurement  of  the  existing  inflation  in  values  and  the 
prospect  of  the  country's  growth  in  wealth  and  population 
in  the  future.  Public  works  of  all  kinds  were  also  con- 
structed without  taking  into  account  the  real  wealth  and 
taxpaying  power  of  the  community.  The  fever  of  specula- 
tion, in  short,  arising  from  the  inflation  of  land  values  soon 
developed  into  an  insane  rush  for  wealth,  and  with  the 
growth  of  confidence  in  Argentine  resources  European 
capital  was  literally  poured  into  the  country. 

In  addition  to  the  private  commitment  of  capital  by 
foreign  investors,  the  Argentine  Governments  also,  as  a 
result  of  the  demand  for  public  works  and  of  the  govern- 
mental policy  of  guaranteeing  interest  charges  on  railroads 
and  other  industrial  projects,  soon  found  it  necessary  to 
largely  increase  their  indebtedness.  The  national  and  pro- 
vincial administrations  negotiated  loans  by  the  dozen 
through  European  financial  houses.  Many  municipalities 
also  tried  their  hand  at  extracting  from  the  foreigner  the 

*  As  early  as  April,  1888,  the  cedulas  issued  amounted  to  47,957,000 
pounds.  By  the  year  1890  the  face  value  of  cedulas  outstanding  was 
equal  to  400,000,000  currency  dollars,  of  which  amount  about  one  half 
was  held  by  foreign  investors. 


SPECULATION  AND  GAMBLING  49 

funds  from  which  he  was  so  willing  to  part.  During 
the  three  years  prior  to  1886,  various  loans  effected  by 
the  Argentine  Republic  in  European  countries  had  never 
exceeded  an  annual  total  of  £7,000,000  and  were  generally 
much  below  this  amount.  The  total  borrowings  in  1886 
rose  suddenly,  and  during  the  three  subsequent  years 
reached  unprecedented  figures.*  The  extent  to  which 
public  borrowing  was  carried  may  be  seen  from  the  fol- 
lowing estimate  of  the  total  loans  during  the  period 
1886-89: 

TOTAL  OF   LOANS   NEGOTIATED   BY  ARGENTINA,  1886-1889. 


1886 

£13,500,000 

1889 

£29,000,000 

1887 

14,500,000 

1890 

5,000,000 

1888 

36,000,000 

Total 

98,000,000 

The  negotiation  of  these  loans  had  a  twofold  effect.  In 
the  first  place,  the  funds  realized  furnished  a  further  incen- 
tive to  Government  extravagance  and  oflScial  corruption. 
In  the  second  place,  they  gave  an  additional  impulse  to  the 
existing  speculation.  To  make  matters  worse,  the  country 
was  soon  plunged  into  the  evils  resulting  from  a  greatly 
depreciated  currency. 

Specie  payments  in  Argentina  had  been  suspended  in 
1885.  Two  years  later  an  attempt  was  made  in  the  Free 
Banking  Law  of  1887  to  put  the  currency  of  the  country 
on  a  uniform  basis,  by  the  adoption  of  a  national  banking 
system  modeled  after  that  of  the  United  States.  The  head 
of  this  system  was  the  National  Bank  at  Buenos  Ayres,  with 
branches  located  in  the  various  provinces.  These  banks 
were  authorized  to  create  a  paper  circulation,  and  to  guar- 
antee the  notes  thus  issued  the  banks  were  required  to  pur- 
chase from  the  Government  national  bonds.  The  pay- 
ments for  these  bonds  were  to  be  made  in  gold,  which  was 
to  be  kept  in  the  Treasury  as  the  ultimate  security  of  the 
currency  issued  by  the  banks.  In  compliance  with  the  law, 
millions  of  dollars  in  gold  were  imported  by  the  provincial 

'  The  Bankers'  Magazine  (London),  vol.  li  (March,  1890),  p.  459. 


50         THE  CAUSES  OF  THE  PANIC   OF   1893 

banks  and  duly  paid  into  the  National  Treasury  as  a  guar- 
antee of  their  note  issues.  The  National  Government  kept 
the  gold  for  about  a  year,  when,  in  defiance  of  the  banking 
law,  the  fund  was  used  for  the  payment  of  Government  ob- 
ligations. As  soon  as  gold  began  to  leave  the  Treasury 
the  premium  on  that  metal  went  up  by  leaps  and  bounds. 
Additional  apprehension  over  the  currency  situation  was 
also  caused  by  the  fact  that  even  Government  officials  could 
not  give  an  accurate  account  of  the  amount  of  notes  which 
had  been  issued  by  the  banks.  It  was  stated  to  be  between 
250  and  300  million  dollars,  but  these  estimates  were  soon 
invalidated  by  the  discovery  that  illegal  issues  of  millions 
had  been  made  by  both  national  and  provincial  institutions. 
Under  these  conditions  the  premium  on  gold  during  the 
two  years  1888-89  advanced  from  50  to  250  per  cent.,  and 
during  the  year  1890  practically  remained  at  the  latter 
figure.  The  Government  endeavored  to  prevent  the  depre- 
ciation of  paper  issues  by  declaring  a  forced  currency,  but 
this  action  only  served  to  stimulate  further  speculation  in 
gold.  The  resultant  variations  in  the  currency  affected  the 
interests  of  every  one  financially  concerned  in  the  develop- 
ment of  the  country,  and  especially  the  holders  of  cedulas 
and  other  securities  which  were  payable  in  currency  dollars. 
These  dollars  after  the  dissipation  of  the  gold  guarantee 
fund  Ifad  no  real  basis  of  value,  and  the  finishing  touches 
were  thus  given  to  cedulas  as  a  wildcat  security. 

The  financial  orgy  in  Argentina  during  the  period  1887- 
90  had  thus  developed  to  a  point  where  the  country  was 
burdened  with  an  immense  circulation  of  inconvertible  and 
depreciated  paper  currency,  an  excessive  and  fraudulent 
issue  of  cedulas,  and  a  large  public  indebtedness.  The 
significant  feature  of  these  various  forms  of  Argentine 
liability,  so  far  as  our  story  is  concerned,  was  the  fact  that 
they  were  principally  in  the  hands  of  foreign  investors. 
The  enormous  amount  of  foreign  capital  invested  in  the 
country  is  at  once  apparent  from  the  following  statement, 


SPECULATION  AND  GAMBLING 


51 


showing  the  principal  items  of  Argentine  indebtedness  held 
abroad  in  1890:^ 

ARGENTINE   LIABILITIES   ABROAD,  1890. 


Gold  Dollars. 


Currency 
Dollars. 


National  Debt 

Provincial 

Municipal 

Cedulas  (say)    

Railways 

Miscellaneous  and  Private  Investments 


Gold  liabilities  in  currency,  at  300 
gold  premium 


122,283,000 

193,500,000 

23,600,000 

250,000,000 
200,000,000 


200,000,000 


789,443,000 


200,000,000 


2,368,329,000 


Total  liabilities  in  currency. 


2,568,329,000 


The  total  indebtedness  of  Argentina  in  1890,  both  at 
home  and  abroad,  was  as  follows: 

TOTAL  ARGENTINE   LIABILITIES,   1890. 


National  Debt 

Provincial 

Municipal 

Cedulas 

Railways 

Miscellaneous  and  Private  Investments 


Gold  liabilities  in  currency,  at  300 
gold  premium 


Gold  Dollars. 


300,000,000 

195,500,000 

23,660,000 

250,000,000 
200,000,000 


967,160,000 


Total  liabilities  in  currency 


Currency- 
Dollars. 


1,153,000 
13,600,000 

400,000,000 


414,753,000 


2,901,480,000 


3,316,233,000 


The  greater  part  of  this  Argentine  foreign  indebtedness 
of  over  one  thousand  million  dollars  (in  terms  of  gold) 

*  "  The  Argentine  Crisis  —  Its  Financial   Significance,"  by  W.  R. 
Lawson,  The  Fortnightly  Review,  vol.  liv  (September,  1890),  p.  459. 


62 


THE   CAUSES  OF  THE  PANIC  OF   1893 


was  held  in  Great  Britain.  The  appearance  of  specula- 
tion in  Argentina,  as  already  noted,  had  been  coincident 
in  point  of  time  with  the  outgrowth  of  speculative  tenden- 
cies in  the  United  Kingdom,  and  the  two  movements  had 
subsequently  run  parallel  with  each  other.  Consequently 
a  steadily  increasing  volume  of  investment  funds  passed  to 
the  River  Plate  through  British  banks,  finance  companies, 
and  private  channels.  Reputable  financial  houses  in  Great 
Britain,  like  the  old  established  firm  of  Baring  Brothers, 
underwrote  Argentine  public  loans  and  disposed  of  them  to 
the  British  public.  Thirteen  Argentine  provinces  during 
the  period  1886-90  exploited  their  credit  in  London  to  the 
extent  of  ,£38,700,000,  the  National  Government  negotiated 
loans  amounting  to  almost  £25,000,000,  and  Argentine 
municipalities  floated  about  £5,000,000  of  their  securities 
in  London.  British  investors  also  placed  between  forty  and 
sixty  million  pounds  sterling  in  Argentine  railroad  projects, 
and  a  similar  amount  in  miscellaneous  investments.^ 

The  grand  total  of  British  capital  commitments  in 
Argentina,  therefore,  reached  an  immense  figure.  Con- 
sidered in  connection  with  the  concomitant  speculation  at 
home  and  in  South  Africa,  the  enormous  extent  of  the 
British  speculative  movement  during  the  four  years  1887- 
90  is  clearly  evident.  Its  magnitude  may  be  more  clearly 
realized  from  a  summary  statement  of  the  total  capital  com- 
mitments in  Great  Britain  during  this  period :  ^ 

TOTAL  CAPITAL  COMMITMENTS   IN   GREAT  BRITAIN,  1887-90. 


1890 

1889 

1888 

1887 

1st  Quarter 

2d 

3d 

4th 

£30,243,000 
59,510,000 
39,103,000 
13,709,000 

£56,846,000 
49,866,000 
34,526,000 
48,198,000 

£34,691,000 
74,957,000 
22,951,000 
27,570,000 

£28,599,000 
35,535,000 
16,059,000 
17,873,000 

142,565,000 

189,436,000 

160,169,000 

158,066,000 

'  "  The  Argentine  Crisis  —  Its  Financial  Significance,"  by  W.  R. 
Lawson,  The  Fortnightly  Review,  vo\.  liv  (September,  1890),  pp.  448-51. 

*  "  Our  New  Investments  in  1890,"  The  Economist  (London),  vol. 
xlviii  (December  27,  1890),  pp.  1627-28. 


SPECULATION  AND   GAMBLING 


53 


Great  Britain  had  thus  invested  a  large  percentage  of  the 
increased  wealth  which  had  accrued  from  her  prosperity 
in  trade  and  industry  during  the  four  years  1887-90  in 
enterprises  of  a  speculative  character.  In  addition  there 
had  been  a  large  expansion  of  credit,  in  which  many  of 
the  transactions  had  been  of  an  abnormal  character  based 
upon  inflated  and  speculative  values.  Financial  houses  had 
underwritten  large  amounts  of  securities  and  relied  upon 
their  sale  to  the  public  for  reimbursement.  Individual 
investors,  in  many  instances,  had  not  only  placed  their 
savings  in  questionable  investments,  but  had  also  used  se- 
curities of  doubtful  value  as  collateral  for  loans  with  which 
to  continue  their  speculating  operations.  A  stimulus  had 
been  given  to  this  movement  by  the  joint-stock  banks, 
which  had  followed  the  policy  of  loaning  at  a  moderate 
rate  up  to  a  reserve-point  of  10  or  12  per  cent,  of  their 
liabilities,  and  then  depending  upon  the  Bank  of  Eng- 
land for  any  funds  which  might  be  needed  to  replenish 
their  reserves.^  On  account  of  this  action  upon  the  part 
of  the  joint-stock  banks,  the  Bank  of  England  could 
not  retain  its  holdings  of  gold,  and  oftentimes  found  it 

*  The  following  summary  statement  of  some  of  the  strongest  joint- 
stock  banks  at  the  end  of  December,  1890,  shows  the  smallness  of  their 
cash  reserves  as  compared  with  their  liabilities. 


London  and  Western    . . . . 

Union 

London  Joint-Stock 

City    

London  and  Southwestern 

London  and  County    

Imperial 

Alliance 

Consolidated 


Liabilities  to 
Public. 


£ 

26,958,600 

16,809,700 

14,155,100 

9,677,300 

4,897,600 

39,296,100 

4,251,000 

5,403,300 

3,789,800 


125,238,500 


Cash  in 

Hand  and  at 

Bank. 


£ 

3,984,200 

2,814,400 

1,165,700 

783,300 

721,800 

4,981,700 

421,600 

594,300 

621,300 


16,088,300 


Proportion, 
of  Cash  to 
Liabilities. 


% 

14.8 
16.8 

8.1 

8.1 
14.8 
12.7 

9.9 
10.9 
16.3 


12.9 


54         THE  CAUSES  OF  THE  PANIC   OF   1893 

necessary  to  raise  the  rate  of  discount  for  the  purpose  of 
securing  an  increase  in  the  gold  supply.  As  a  result 
of  the  excessive  speculation  the  credit  transactions  of 
the  United  Kingdom  finally  increased  beyond  a  safe  pro- 
portion to  the  gold  reserves.  On  December  31,  1889,  the 
directors  of  the  Bank  of  England  were  forced  to  raise 
the  rate  of  discount  to  sLx  per  cent.  As  a  result  of  this 
decisive  action,  the  speculation  movement  was  greatly 
curbed  and  a  great  many  bubbles  collapsed  at  their  incep- 
tion. There  was  no  thorough  purging  of  the  financial  sys- 
tem, however,  and  it  was  clearly  evident  that  any  further 
shock  to  confidence  might  result  in  a  fall  in  values  and  great 
losses.  In  the  event  of  such  a  forced  liquidation,  it  was 
extremely  doubtful  whether  the  real  values  which  under- 
lay the  speculative  movement  would  sustain  the  fabric  of 
credit  which  had  been  reared  upon  them. 


/ 


CHAPTER   IV 

INDUSTRIAL  AND   FINANCIAL  CONDITIONS  IN  FRANCE  AND 
GERMANY,    1884-90 

Trade  and  Industrial  Depression  in  France,  1884-87.  —  Return  of  Prosperous 
Conditions  in  1887,  and  the  Organization  of  the  Copper  Syndicate.  —  Failure 
of  the  Copper  Syndicate  and  the  Soci^t6  des  M^taux.  —  Suspension  of  the 
Comptoir  d'Escompte.  —  Absence  of  Speculation  in  France,  1889-90.  —  The 
Spread  of  Speculation  from  Great  Britain  to  Germany.  —  German  Capital 
Commitments  in  Argentina.  —  The  Joint -Stock  Company  Mania.  —  The 
Threatened  Danger  of  a  Panic  averted  by  the  Reichsbank.  —  Financial 
Situation  in  March,  1890. 

The  financial  and  industrial  history  of  France  during  the 
period  1884-90  did  not  show  any  features  in  common  with 
the  course  of  affairs  in  Great  Britain.    By  the  year  1880 
France  had  so  fully  recovered  from  the  Franco-Prussian     .  5 
war  that  stock-jobbing  and  other  forms  of  reckless  specu-    ,  a 
lation  flourished  in  Paris.   This  movement  came  to  a  head     .C 
during  the  year  1882  in  a  disastrous  financial  breakdown,     V 
and  the  resultant  liquidation  was  attended  by  much  loss    /^/ 
and  the  uncovering  of  many  corrupt  financial  practices.    '    \ 
A  lack  of  confidence  and  activity  in  business  and  industrial 
undertakings  followed.   This  fact,  together  with  the  exist- 
ing depression  in  other  countries,  strongly  influenced  the 
subsequent  course  of  French  industry  and  trade,  and  it 
was  not  until  the  year  1887  that  signs  of  relief  from  the 
continuous  period  of  stagnation  began  to  make  themselves 
evident. 

The  revival  in  trade  and  industrial  enterprise  was  fol- 
lowed by  more  prosperous  conditions.  Unfortunately,  in- 
vestors and  promoters  were  unable  to  confine  their  energies 
to  proper  channels.   To  the  legitimate  activity  in  financial 


56         THE  CAUSES  OF  THE  PANIC   OF   1893 

and  industrial  circles  there  was  soon  added  a  gigantic 
scheme  for  speculating  in  the  price  of  copper. 

As  a  result  of  the  discovery  of  the  copper  deposits  on 
Lake  Superior  and  in  other  regions  of  the  United  States 
and  South  America,  and  the  reopening  of  the  Rio  Tinto 
mines  in  Spain,  the  world's  supply  of  copper  had  been 
enormously  increased.  The  price,  therefore,  had  steadily 
fallen.^  French  capitalists  had  obtained  control  of  the 
Rio  Tinto  Company,  and,  under  their  management  it  had 
become  very  prosperous.  The  Societe  des  Metaux,  a  com- 
pany formed  with  the  support  of  the  Comptoir  d'Escompte, 
also  dealt  extensively  in  copper.^  The  directors  of  the 
Societe  des  Metaux,  being  led  astray  by  the  success  of  the 
diamond  operations  in  South  Africa,  sought  to  monopolize 
the  sale  of  copper.  Under  their  direction  a  syndicate  of 
speculators  was  formed  which  attempted  to  control  the 
copper  market  by  buying  the  entire  output  of  the  mines  at 
a  fixed  price.  Contracts  were  made  with  the  principal 
copper  works  of  the  world,  which  agreed  for  the  space  of 
three  years  to  sell  all  their  copper  to  the  syndicate  at  ,£70 
per  ton,  the  copper  ring  then  raising  the  price  to  £80  per 
ton.  These  contracts  involved  the  purchase  of  150,000 
tons  of  copper  per  year,  or  an  annual  outlay  of  262,500,000 
francs.  In  addition,  the  syndicate,  in  order  to  successfully 
control  the  supply,  had  to  buy  the  output  of  mines  which 
had  refused  to  contract  with  it. 

During  1888,  the  first  year  of  the  copper  ring's  operation, 
it  found  its  object  frustrated  by  several  factors  to  which  it 
had  not  given  sufficient  consideration  in  forming  its  plans. 
In  the  first  place,  the  supply  of  copper,  under  the  stimulus 
of  higher  prices,  was  greatly  increased.  New  supplies  of 
the  metal  came  into  the  market  from  every  direction  to 
profit  by  the  high  prices,  the  world's  production  of  copper 

*  Before  1870  the  price  of  copper  had  ranged  from  2000  to  2500  francs 
per  ton.    In  1887  it  was  below  1000  francs. 

'  In  the  autumn  of  1887  the  Societe  des  Metaux,  with  the  aid  of  a 
group  of  financiers,  conducted  a  successful  corner  in  Chile  bars. 


CONDITIONS  IN  FRANCE  AND  GERMANY     57 

in  1888  being  500,000  tons  greater  than  the  preceding 
year.  In  the  second  place,  people  would  not  buy  copper 
at  the  enhanced  prices.  In  many  cases  old  copper  was 
used  by  manufacturers.  Wherever  possible  iron  and  steel 
were  substituted.  Moreover,  copper  dealers  would  not 
replenish  their  stocks.  As  a  consequence  of  this  limitation 
of  demand  in  the  face  of  an  increase  in  the  supply,  the 
copper  speculators,  in  order  to  maintain  the  high  level  of 
prices,  found  it  necessary  to  hoard  their  supplies  of  copper 
and  purchase  a  great  amount  of  the  outside  production. 
At  the  beginning  of  March,  1889,  the  syndicate  held,  in 
various  parts  of  the  world,  160,000  tons  of  copper. 

In  accumulating  this  amount  not  only  the  resources  of 
the  Societe  des  Metaux  had  been  exhausted,  but  even  the 
entire  capital  and  part  of  the  deposits  of  the  Comptoir 
d'Escompte,  which  had  rendered  assistance  to  the  copper 
speculators.^  This  institution  had  also  guaranteed  the 
contracts  of  the  Societe  des  Metaux  for  two  years.  When 
the  insolvent  condition  of  the  bank  became  known  early  in 
March,  through  the  attempted  withdrawal  of  the  Russian 
Government  deposits,  other  depositors  endeavored  to  with- 
draw their  funds,  and  a  general  run  upon  the  Comptoir 
d'Escompte  and  two  other  Paris  banks  was  precipitated. 
The  leading  bankers  of  Paris  advanced  25,000,000  francs, 
but  this  sum  was  not  sufficient.  Finally  the  Bank  of  France 
took  over  the  assets  of  the  Comptoir  d'Escompte,  and,  in 
order  to  prevent  a  general  financial  panic,  advanced 
100,000,000  francs  toward  meeting  its  liabilities.  In  the 
mean  time,  the  copper  syndicate  found  itself  without  means 
to  absorb  the  increasing  supply  of  copper.  Consequently  it 
could  not  keep  its  contracts,  and  the  large  producers  began 
to  sell  in  the  open  market.  The  price  of  copper,  therefore, 
quickly  moved  downwards.     Under  these  conditions  the 

'  The  Comptoir  d'Escompte  had  involved  in  the  copper  speculation 
not  only  its  capital  of  80,000,000  francs,  but  even  its  reserve  funds  of 
gO,000,000  francs. 


58 


THE  CAUSES  OF  THE  PANIC   OF   1893 


copper  speculators  sustained  great  losses.  The  Societe  des 
Metaux  could  not  meet  its  obligations.  Finally,  during 
the  latter  part  of  March,  1889,  it  was  forced  to  suspend 
payments,  and  the  shareholders  lost  all  their  capital. 

Two  months  previous  to  the  failure  of  the  Comptoir 
d'Escompte  and  the  Societe  des  Metaux,  work  had  been 
suspended  on  the  Panama  Canal,  and  the  canal  company, 
which  had  absorbed  1300  million  pounds  of  French  capital, 
was  forced  into  liquidation.  As  a  result  of  these  two  almost 
simultaneous  financial  catastrophes,  France  was  deterred 
from  entering  into  the  speculative  activity  which  was  so 
prevalent  in  England  during  the  period  1888-90.  These 
years  were  spent  by  France  in  putting  her  financial  house 
in  order,  and  were  marked  by  the  endeavor  to  liquidate 
past  excesses  and  recuperate  past  losses.  The  French 
people  were  very  cautious  in  entering  into  new  enterprises 
of  any  kind,  and  only  a  small  amount  of  Argentine  issues 
or  other  securities  of  a  doubtful  character  were  absorbed  by 
French  investors.  Consequently  there  was  no  inflation 
of  values,  and  the  cash  reserves  were  ample  in  comparison 
with  the  credit  transactions  of  the  country.  This  fact  is 
apparent  from  the  condition  of  the  Bank  of  France  during 
the  period:* 

BANK   OF   FRANCE,    1886-90. 


First 
•week 

Assets. 

Liabilities. 

of 
Janu- 
ary. 

Coin  and 
Bullion. 

Discounts 
and  Ad- 
vances. 

Circulation. 

Government 
Deposits. 

other. 

1886 
1887 
1888 
1889 
1890 

£ 
89,344,000 
94,117,000 
91,905,000 
89,223,000 
100,155,000 

£ 
55,771,000 
53,014,000 
52,703,000 
59,190,000 
60,419,000 

£ 
116,542,000 
115,101,000 
113,588,000 
110,606,000 
126,209,000 

£ 
3,250,000 
9,238,000 
6,006,000 
9,650,000 
12,818,000 

£ 
16,107,000 
14,410,000 
15,278,000 
17,588,000 
13,112,000 

'  During  the  period  1885-90  the  trade  and  industrial  situation  in 
Austro-Hungary  gave  no  indication  of  unusual  activity,  owing  to  the  fact 
that  the  country  had  never  fully  recovered  from  the  evil  effects  of  the 


CONDITIONS  IN   FRANCE   AND   GERMANY     59 

The  situation  in  Germany,  however,  was  entirely  differ- 
ent from  that  in  France.  The  speculating  movement  at  its 
very  outset  was  communicated  from  London  to  Berlin, 
and  after  the  year  1887,  although  the  German  capital 
commitments  were  not  so  great  in  amount,  the  gambling 
mania  was  as  prevalent  in  Germany  as  in  Great  Britain. 
As  early  as  1886  Argentina  began  to  exploit  its  credit  in 
Berlin,  and  during  the  three  subsequent  years  a  consider- 
able amount  of  Argentine  loans  were  issued  at  good  prices, 
through  the  Deutsche  Bank  and  the  Disconto-Gesell- 
schaft.  The  amount  and  description  of  Argentine  public 
securities  thus  floated  in  Germany  during  the  period 
1886-89  appears  in  the  following  summarized  form:^ 

ARGENTINE   LOANS   ISSUED    IN   GERMANY. 

5  per  cent.  loan  of  the  Province  of  Buenos  Ayres,  issued  Oc- 
tober 12,  1886,  at  80J  per  cent $12,511,432 

5  per  cent,  gold  loan  of  1886,  issued  August  25, 1887,  at  90 

per  cent 10,291,000 

4^  per  cent,  loan  of  1888,  issued  October  16, 1888,  at  85.80 

per  cent 19,769,500 

4^  per  cent,  exterior  loan,  issued  February  20,  1889,  at  90 

per  cent 27,000,000 

4  J  per  cent.  loan  of  the  City  of  Buenos  Ayres,  issued  May  1, 

1889,  at  86  per  cent 9,920,600 

The  German  people  were  trained  to  look  upon  Argentine 
loans  as  first-class  securities,  and  many  small  investors 
bought  them.  Large  amounts  of  other  Argentine  paper, 
such  as  cedulas  and  railroad  stocks  and  bonds,  were  also 
purchased.  Moreover,  German  banking  houses,  led  by  the 
Deutsche  Bank,  established  branches  in  Argentina  and 
extended  credits  to  Argentine  banks. ^ 

The  public  became  uneasy  in  1888,  however,  over  the 

future  of  Argentine  finances,   and  during  the  following 

crisis  of  1873.  Austro-Hungary  was  also  more  of  a  debtor  than  a  creditor 
nation,  and  consequently  was  not  in  a  position  to  indulge  in  the  specu- 
lative activity  which  had  been  a  marked  feature  of  the  years  1887-90  in 
Great  Britain. 

»  The  Ecmomist  (London),  vol.  xlviii  (November  29,  1890),  p.  1511. 

^  The  Deutsche  Bank  was  a  partner  in  the  Uebersee  Bank  at  Buenos 
Ayres;  the  Disconto-Gesellschaft  was  also  a  partner  in  the  Du  Barry 
banking  concern  of  Buenos  Ayres  and  Antwerp. 


60 


THE  CAUSES  OF  THE  PANIC   OF   1893 


year  Germany  was  a  heavy  seller  of  Argentine  securities. 
The  volume  of  Argentine  paper  which  still  remained  in 
the  hands  of  German  investors  at  the  close  of  the  year 
1890  was  estimated  at  about  100,000,000  marks. ^  These 
securities  were  principally  held  by  small  investors  who 
were  scattered  over  the  country. 

But  whatever  evils  of  speculation  Germany  escaped 
through  her  distrust  of  Argentine  securities  were  more 
than  equaled  by  her  gambling  in  industrial  shares.  After 
the  year  1888,  when  Argentine  issues  first  began  to  be 
looked  upon  with  suspicion,  German  operators  turned 
their  attention  toward  the  promotion  of  financial  and 
industrial  enterprises.  Precisely  as  in  Great  Britain,  this 
movement  soon  developed  into  a  mania  for  the  organiza- 
tion of  joint-stock  companies.  During  the  period  1886-90, 
1061  new  companies  were  floated,  with  a  total  capitaliza- 
tion of  more  than  1099  million  marks.  The  number  of 
companies  organized  each  year,  and  the  total  capital 
authorized  was  as  follows :  ^ 


NUMBER  AND   CAPITAL   OF  JOINT-STOCK   COMPANIES   ORGAN- 
IZED   IN   GERMANY.    1886-90. 


Year. 

Number  of  New 
Companies. 

Capital  —  Million  Marks. 

1886 
1887 
1888 
1889 
1890 

113 
168 
184 
360 

236 

103.94 
128.41 
193.68 
402.54 
270.99 

Total 

1061 

1099.56 

1  The  Economist  (London),  vol.  xlviii  (November  29,  1890),  p.  1511. 
In  a  statement  of  the  Deutsche  Bank  issued  during  the  first  week  of 
December,  1890,  its  commitments  in  Argentina  appeared  as  follows: 
Credits  extended  to  Argentine  banks,  2,451,000  marks,  of  which  amount 
2,000,000  marks  were  uncovered;  investments  in  Argentine  loans  and 
syndicates,  3,395,000  marks. 

2  "The  Crisis  of  1890,"  Max  Wirth,  Journal  of  Polilical  Economy, 
vol.  i  (March,  1893),  p.  228.  See  also  "  The  Earnings  of  German  Com- 
panies, 1887-89,"  The  Economist  (London),  vol.  xlviii  (December  20, 
1890),  p.  1605. 


CONDITIONS  IN  FRANCE  AND  GERMANY     61 

These  new  companies  included  all  branches  of  financial 
and  industrial  enterprise.  Existing  industries  and  business 
of  every  description  were  combined  into  joint-share  cor- 
porations, and  new  projects  were  constantly  being  floated. 
The  same  reckless  financial  methods  were  also  practiced 
that  had  marked  the  joint-stock  company  craze  in  Great 
Britain.  The  future  condition  of  trade  and  industry  was 
heavily  discounted,  and  upon  this  basis  of  earning  power 
the  amount  and  value  of  the  stock  was  fixed.  Almost  all 
of  the  companies  were  over-capitalized,  and  a  large  per- 
centage of  stock  was  retained  by  promoters  and  vendors 
as  a  reward  for  their  services. 

Despite  these  conditions  of  organization,  promoters  ex- 
perienced no  difiiculty  in  disposing  of  new  issues  to  invest- 
ors. The  gambling  proclivities  of  the  public  increased 
each  year  after  1887.  Investors  were  seduced  by  radiant 
prospectuses  of  new  ventures,  and  the  stock  of  companies 
of  decidedly  questionable  prospects  was  quickly  absorbed. 
The  volume  of  credit  operations  was  dangerously  extended. 
Swindling  went  on  unblushingly.  Promoters  and  under- 
"WTriters  devoted  all  their  energies  to  the  flotation  of  new 
undertakings,  and  then  sold  their  own  holdings,  leaving 
the  companies  in  the  hands  of  investors  who  knew  little 
or  nothing  of  the  business  which  they  represented.  As 
a  consequence  large  numbers  of  the  new  ventures  failed, 
and  it  soon  became  evident  that  unless  the  insane  specula- 
tion was  checked,  the  country  would  be  exposed  to  the 
danger  of  a  financial  collapse. 

The  first  note  of  warning  came  from  the  Reichsbank. 
This  institution,  however,  adopted  a  policy  entirely  differ- 
ent from  that  of  the  Bank  of  England  under  similar  cir- 
cumstances in  Great  Britain.  Its  discount  rate,  which  had 
stood  at  five  per  cent,  during  the  first  two  months  of  1890, 
was  suddenly  lowered  to  four  per  cent,  during  the  month 
of  March.  An  opportunity  was  thus  given  to  investors 
to  obtain  funds  without  throwing  their  holdings  upon  the 


62 


THE  CAUSES  OF  THE  PANIC   OF   1893 


market,  and  in  this  way  preventing  a  forced  liquidation 
and  a  consequent  collapse  in  values.  They  were  not 
slow  in  availing  themselves  of  the  lowered  rates,  and  the 
loans  and  note  issues  of  the  bank  rapidly  increased.^ 
During  the  month  of  March  the  Reichsbank  increased 
its  discounts  and  advances  £7,755,000  and  its  note  issues 
£7,376,000. 

The  threatened  danger  of  a  financial  panic  was  thus 
averted.  But  the  effect  of  the  action  of  the  Reichsbank 
was  only  temporary.  No  permanent  disposition  had  been 
made  of  the  great  mass  of  credit  obligations  and  the  inflated 
values  which  had  grown  out  of  the  previous  speculation. 
They  still  constituted  a  menace  to  the  future  prosperity 
of  the  country,  and  the  indications  were  that  a  considerable 
period  of  time  would  be  required  for  their  liquidation. 

^  The  condition  of  the  Reichsbank  during  the  first  week  of  January 
of  the  three  years  1887-89,  and  during  the  first  week  of  January,  Feb- 
ruary, March,  and  April,  1890,  appears  in  the  following  statement: 


Assets. 

Liabilities. 

Coin  and 
Bullion. 

Discounts 

and 
Advances. 

Notes. 

Deposits. 

Discount 
Kate. 

£ 

£ 

£ 

£ 

% 

1887   Jan. 

33,815,000 

30,286,000 

48,325.000 

13,742,000 

5 

1888      " 

38,342,000 

32,404,000 

50,527,000 

16,648,000 

5 

1889      " 

43,016,000 

28,143,000 

53,745,000 

14,526,000 

^ 

1890      " 

38,251,000 

35,204,000 

50,684,000 

19,590,000 

5 

Feb. 

39,265,000 

27,176,000 

48,063,000 

14,689,000 

5 

Mar. 

41,124,000 

28,770,000 

45,204,000 

20,815,000 

4 

Apr. 

40,152,000 

36,525,000 

52,580,000 

20,006,000 

4 

CHAPTER   V 

THE   PANIC   OF   1890  '" 

. 

/   The  Financial  Breakdown  in  Argentina.  —  The  Resultant  Liquidation  in  Great 

I  Britain.  —  The  Baring  Failure.  —  Measures  adopted    by  the  Bank  of  Eng- 

V        land.  —  Decline   in   Value  of  All   Descriptions   of  Securities.  —  Forced  and 

\.   Voluntary    Liquidation   in   Great    Britain.  —  The   Effects   of   Conditions   in 

Great  Britain  upon  German  Money  and  Stock  Markets.  —  The  Financial  and 

Industrial  Situation  in  France  during  the  Fall  of  1890.  —  The  Return  to  the 

United  States  of  American  Securities  held  in  Great  Britain,  and  the  consequent 

Exports  of  Gold  from  the  United  States.  —  The  Low  Level  of  Bank  Reserves 

in  the  United  States.  —  Severe  Stringency  in  the  New  York  Money  Market 

and  the  Issue  of  Clearing-House  Certificates.  —  Decline  in  Stock  Values.  — 

Business  Failures  in  the  United  States  during  1890.  —  Continued  Return  of 

American  Securities  by  Great  Britain  during  the  year  1891  and  Exports  of 

Gold  from  the  United  States. 

The  financial  situation  in  Germany  and  Great  Britain 
during  the  early  months  of  1890  was,  therefore,  exceedingly 
precarious,  owing  to  the  reckless  speculation  which  had 
prevailed  in  both  of  these  countries,  and  especially  in 
Great  Britain  during  the  previous  four  years.  The  action 
of  the  Bank  of  England,  however,  at  the  beginning  of  the 
year  in  raising  the  rate  of  discount,  as  already  seen,  had 
exercised  a  restrictive  influence  upon  British  financial 
excesses.  A  period  of  comparative  ease  and  quiet  suc- 
ceeded which  lasted  until  about  the  middle  of  the  year. 
At  that  time  the  financial  troubles  in  Argentina  reached 
an  acute  stage,  and  through  their  influence  upon  Great 
Britain  brought  financial  affairs  in  that  country  to  a  critical 
stage.  The  dissipation  of  the  gold  reserve,  which  had  been 
deposited  with  the  Government  by  the  Argentine  banks 
as  a  guarantee  of  their  note  issues,  had  been  followed,  as 
already  pointed  out,  by  a  lack  of  confidence  in  Argentine 
paper  currency,  and  a  consequent  rise  in  the  premium  on 
gold,  which  ranged  from  200  to  250  per  cent,  during  the 
early  part  of  the  year  1890.  Under  these  conditions  great 
diflBculty  was  experienced  in  carrj'ing  on  the  Argentine 


64         THE   CAUSES   OF  THE   PANIC   OF   1893 

Government.  The  interest  charges  on  cedulas,  together 
with  that  on  national,  provincial,  and  railroad  bonds  held 
abroad,  required  the  annual  remittance  to  Europe  of  about 
£7,500,000  in  gold.^  Moreover,  the  annual  indebtedness 
of  Argentina  abroad  was  further  increased  by  the  fact  that 
her  merchandise  imports  exceeded  exports.  No  gold  was 
produced  in  the  country,  and,  under  the  system  of  depre- 
ciated paper  currency,  none  was  received  by  the  Govern- 
ment in  the  payment  of  taxes.  Consequently,  it  soon 
became  evident  to  public  officials  in  Argentina  that  the 
only  way  to  avoid  default  of  payment  on  Government 
obligations  was  to  negotiate  fresh  loans  in  Europe  for  the 
purpose  of  paying  interest  charges  on  previous  issues. 
This  recourse,  however,  owing  to  the  growing  suspicion 
of  European  investors,  became  more  and  more  difficult. 
An  acute  crisis  was  therefore  soon  reached  in  Argentine 
finance.  Through  its  influence  a  political  revolution  was 
inaugurated  which  in  July,  1890,  swept  the  existing 
administration  out  of  power. 

This  change  of  Government,  as  might  be  expected, 
weakened  what  little  confidence  there  was  left  in  Great 
Britain  as  to  the  stability  of  Argentine  finance.  British 
investors  refused  to  place  any  more  funds  in  Argentina, 
and  the  price  of  Argentine  securities  steadily  declined. 
Consequently  the  English  financial  houses  which  had  been 
floating  Argentine  loans  found  themselves  in  a  position  of 
great  difficulty.  Large  masses  of  securities  which  they 
had  underwritten,  and  which  they  had  hoped  to  sell  to  the 
public  at  a  profit,  remained  in  their  hands.  On  account  of 
the  fall  in  value  of  these  securities  it  was  impossible  to  sell 
them  except  at  a  ruinous  loss.  For  the  same  reason  it  was 
impossible  to  use  them  as  a  collateral  for  loans.  The  capital 
invested  was,  therefore,  locked  up,  and  in  order  to  secure 
funds  to  carry  on  their  business,  British  financial  houses 

*  "The  South  American  Financial  Crisis,"  The  Bankers'  Magazine 
(London),  vol.  50  (August,  1890),  p.  1254. 


THE  PANIC   OF   1890  65 

were  forced  to  sell  consols,  American  railroad  stocks  and 
bonds,  and  other  good  securities.  These  transactions 
quickly  attracted  attention,  and  rumors  soon  became  pre- 
valent as  to  the  embarrassment  of  different  firms  in  Lon- 
don. To  make  matters  worse,  about  this  time  there  was 
a  collapse  in  the  South  African  gold-mining  companies, 
followed  by  the  failure  of  several  South  African  banks. 
This  disaster  caused  a  further  drop  in  stock  values.  At  the 
same  time  the  financial  houses  which  had  been  active  in 
promoting  mining  companies  found  themselves  in  posses- 
sion of  a  large  mass  of  undigested  securities,  and  in  order  to 
protect  themselves  were  compelled  to  add  to  the  existing 
alarm  by  throwing  good  securities  upon  the  market.  Under 
these  conditions,  the  rumors  as  to  the  solvency  of  various 
financial  houses  which  were  known  to  be  interested  in 
Argentina  and  South  Africa  became  persistent.  The  dis- 
trust thus  generated  gradually  deepened  until  a  climax 
was  reached  on  November  15,  1890,  when  it  was  an- 
nounced that  the  great  firm  of  Baring  Brothers  and  Com- 
pany had  been  compelled  to  close  its  doors. 

The  embarrassment  of  this  old-established  banking 
house  was  due  to  the  fact  that  it  had  not  taken  proper  care 
to  keep  its  assets  in  a  liquid  form.  It  had  locked  up  so 
much  capital  in  South  American  securities,  and  had  come 
under  such  serious  obligations  in  respect  to  these,  that  it 
did  not  have  funds  to  meet  current  liabilities.  As  late  as 
1889  Baring  Brothers  had  underwritten  part  of  an  Argen- 
tine loan  for  nearly  5£8,000,000  which  the  public  had  re- 
fused to  absorb.^  The  immediate  cause  of  the  failure  of  the 
house  wasdueto  the  insistence  of  the  Argentine  Government 
on  its  pound  of  flesh.  The  Argentine  public  ofiicials  had 
a  lever  against  Messrs.  Baring  Brothers  in  the  shape  of  a 
liability  on  the  part  of  that  firm  to  provide  about  £6,000,000 

'  During  the  period  1881-89  it  was  estimated  that  Messrs.  Baring 
Brothers,  together  with  the  Spanish  house  of  Murictta,  had  put  out 
£42,000,000  in  Argentine  securities.  Of  this  sum  £20,000  000  was  issued 
in  1888. 


66         THE  CAUSES  OF  THE  PANIC   OF   1893 

for  the  Buenos  Ayres  Drainage  and  Water  Works.  The 
Argentine  Administration  proposed  to  compound  this  liabil- 
ity on  the  condition  that  Baring  Brothers  would  negotiate 
a  new  loan  for  the  purpose  of  meeting  Argentine  liabil- 
ities in  Great  Britain.  Baring  Brothers,  as  a  prerequisite 
to  the  granting  of  the  loan,  demanded  a  sharp  supervision 
over  financial  affairs  in  Argentina.^  The  Argentine  oJBBcials 
resented  such  an  interference,  and  pressed  their  claims 
against  the  house. 

Fortunately,  at  this  critical  juncture  Baring  Brothers 
and  Company  acted  with  the  utmost  discretion.  As  soon 
as  they  discovered  that  they  would  have  to  suspend  pay- 
ments, they  disclosed  the  state  of  their  affairs  to  the 
directors  of  the  Bank  of  England.  The  matter  was  kept 
secret,  and  pending  an  examination  of  the  books  of  the 
concern,  measures  were  taken  to  prevent  disaster  when 
the  public  were  informed.  After  an  investigation,  the 
assets  of  the  Barings  were  found  to  exceed  their  liabil- 
ities, and  on  the  14th  day  of  November  the  chief  bankers 
of  London  were  called  in  to  a  meeting  at  the  Bank  of 
England,  to  take  counsel  over  the  situation.  Those  present, 
having  received  accounts  of  Messrs.  Barings'  position, 
agreed  to  guarantee  the  solvency  of  the  firm  up  to  £4,000,- 
000.  Later  in  the  evening  boards  of  directors  of  banks 
and  joint-stock  companies  held  similar  meetings.  By  the 
following  day,  when  the  Baring  embarrassment  was  made 
public,  the  guarantee  fund  had  risen  to  £15,000,000,  or 
almost  double  the  amount  necessary  to  stave  off  a  forced 
liquidation. 2  The  affairs  of  the  firm  were  placed  in  charge 
of  the  Governor  of  the  Bank  of  England,  and  that  institu- 

*  Baring  Brothers  demanded:  (1)  that  the  Argentine  Government 
should  not  make  any  unnecessary  concessions,  (2)  that  it  should  not 
float  any  additional  loans  for  10  years,  and  (3)  that  no  more  notes  should 
be  issued.  A  further  promise  of  a  strictly  economical  administration  was 
demanded. 

^  For  the  conditions  under  which  this  guarantee  was  extended  see 
The  Bankers'  Magazine  (London),  vol.  50  (December,  1890),  pp.  1933- 
1934.  Also,  "The  Licjuidation  of  the  Barings,"  The  Economist  (Lon- 
don), vol.  47  (November  22,  1890),  pp.  1465-1466. 


THE  PANIC   OF   1890 


67 


tion  made  an  immediate  advance  of  ,£7,000,000  to  cover 
the  liabilities.  At  the  same  time  the  Bank  of  England 
adopted  precautionary  measures  relative  to  its  gold  re- 
serve. An  arrangement  was  made  with  the  Bank  of  France 
for  a  loan  of  .£3,000,000  in  gold  on  the  security  of  Treasury 
bills,  and  an  additional  sum  of  £1,500,000  of  that  metal 
was  secured  from  the  Russian  Minister  of  Finance  by  the 
sale  of  Treasury  bonds. 

By  the  adoption  of  these  measures  of  precaution  a  gen- 
eral financial  breakdown  was  averted.  Still  credit  received 
a  severe  shock.  On  November  7  the  Bank  of  England 
discount  rate  was  advanced  to  6  per  cent,  and  remained 
at  that  figure  until  early  in  December,  The  joint-stock 
banks,  on  account  of  their  apprehensions  over  the  situa- 
tion, for  a  short  time  began  to  curtail  their  loans  and  dis- 
counts, and  it  was  finally  necessary  for  the  Governor  of 
the  Bank  of  England  on  November  19  to  caution  some 
of  the  leading  bankers  that  in  refusing  their  customers  the 
usual  facilities  for  borrowing,  they  were  taking  the  sure 
means  of  undoing  all  that  had  been  done  to  restore  con- 
fidence.    The  Spanish  house  of  Murietta  and  Company 

NUMBER   OF  COMPANIES   PUT   INTO   LIQUIDATION.! 


1890. 

1889. 

Companies. 

Compulsory 
Liquidation. 

Voluntary 
Liquidation. 

Compulsory 
Liquidatioii. 

Voluntary 
Liquidation. 

Bankinf 

3 

77 
35 

17 

486 
195 

82 
49 

7 

Commercial 

Manufacturing 

431 
175 

Total  England 

115 
1 
5 

698 
48 
19 

131 
1 
1 

613 
44 

15 

Total    United   King- 
dom   

121 

765 

133 

672 

*  The  Economisi  (London),  vol.  xlix  (January  3,  1891),  p.  10. 


68 


THE   CAUSES  OF  THE  PANIC   OF   1893 


had  to  be  sustained,  and  other  financial  houses  which  had 
issued  South  American  securities  had  to  be  assisted  by 
friends.  While  the  number  of  bankruptcies  in  the  United 
Kingdom  during  the  year  1890  was  less  than  those  for 
1889,  there  was  a  decided  increase  in  the  number  of  com- 
mercial and  financial  companies  that  went  into  liquida- 
tion. The  statistics  for  the  two  years  are  shown  in  the 
table  on  the  preceding  page. 

This  forced  and  voluntary  liquidatipn,  together  with 
the  excited  condition  of  investors  and  operators,  caused 
a  decline  in  all  departments  of  the  stock  market.  Securi- 
ties shrank  in  value  so  greatly  that  much,  if  not  all,  of  the 
previous  inflation  was  swept  away.     Even  first-class  se- 

THE   STOCK   MARKET.      STATISTICS   OF   PRICES 


Trices. 


End  Dec. 

1890. 


End  Dec. 

1889. 


Rise  or  Fall 
in  1890. 


New  2f  %  Consols  (Goschen's) 

New  2^  %  Consols  (Goschen's) 

Colonial  Inscribed  Stocks  — 

Canada,  3^  % 

Cape,  4%  (1883) 

Queensland,  4  % 

Home  Corporation  Stocks  — 

Metropolitan  Consolidated,  3J  % . . . 

Birmingham,  3^  % 

Home  Railway  Stocks  — 

Caledonian 

London  and  Northwestern 

North-Eastern  Consols 

American  and  Canadian  Railway 
Shares  — 

Central  Pacific  shares 

Illinois  Central  shares 

New  York  Central  shares 

Pennsylvania  R.  R.  $50  shares 

South  American,  etc.,  stocks  — 

Argentine,  5  %,  1886 

Buenos  Ayres,  6  %,  1882-86 

Guatemala,  4  % 

Uruguay,  5  %  Unified 


951 
92^ 

103 
108 
107 

109i 
107^ 

119 

177i 

165i 


30 
100 
103 

51i 

77^ 

m 

47 
6H 


97i 
94| 

105 

llOi 

llli 

112| 
llOf 

129 

ISlf 

1751 


35i 
122 

54i 

94 
99 
62 

73i 


-  If 

-  2i 

-  2 

-  2i 

-  4i 

-  3 

-  H 

-10 

-  4i 

-m 


-  5J 

-22 

-  H 

-  H 

-16i 
-30i 
-15 
-21| 


THE  PANIC   OF   1890  69 

curities  were  seriously  affected  in  the  downward  rush  of 
the  market/  The  inflated  South  American  and  other 
speculative  issues,  however,  came  in  for  the  largest  amount 
of  depreciation.  This  fact  appears  from  a  comparison  of 
the  quotations  of  some  of  the  leading  stocks  on  Decem- 
ber 31,  1889,  with  the  quotations  of  the  year  previous.^ 
(See  table  on  p.  68.) 

The  fall  in  the  prices  of  good  securities  was  principally 
due  to  the  efforts  of  investors  and  financial  houses  to  pro- 
tect their  speculative  holdings.  The  process  of  selling 
first-class  securities  in  order  to  prevent  the  sacrifice  of 
speculative  shares,  as  already  seen,  had  been  going  on 
steadily  during  the  first  three-quarters  of  the  year.  After 
the  failure  of  the  Barings  and  the  consequent  liquidation 
and  the  collapse  of  inflated  values,  underwriters  and 
financial  institutions  found  it  more  and  more  difficult  to 
carry  the  large  mass  of  securities  which  they  had  been  un- 
able to  foist  upon  the  public.  As  calls  upon  them  fell  due, 
and  as  fresh  margins,  owing  to  the  decline  in  prices,  had 
to  be  supplied,  it  became  necessary  to  throw  on  the  market 
a  constantly  increasing  amount  of  salable  securities  such 
as  consols  and  the  shares  of  first-class  home  corporations. 
Considerable  funds  were  also  realized  from  the  sale  of 
the  stocks  and  bonds  of  railroads  in  the  United  States. 
The  continued  offering  for  sale  of  securities  of  this  char- 
acter, at  a  time  when  there  was  an  unusually  active 
demand  for  money,  not  only  resulted,  as  might  be  ex- 
pected, in  a  decline  in  their  value,  but  also  contributed  to 
the  general  depression  of  prices  in  the  stock  market. 

This  downward  tendency  of  stock  values  was  strongly 
reflected  in  the  German  market.  The  amount  of  German 
capital  commitments  in  Argentina,  as  already  seen,  had 
been  steadily  decreasing  since  the  year  1888,  and  in  1890 

1  "Why  Prices  have  collapsed  on  the  Stock  Exchanf!;e. "  The  Econo- 
mist (London),  vol.  xlviii  (November  22,  1800),  pp.  1471-72. 

*  "  Commercial  History  and  Review  of  1890,"  p.  35,  Annual  Supple- 
ment of  The  Economist  (London),  vol.  xiix  (February  21,  1891). 


70         THE   CAUSES   OF  THE  PANIC   OF   1893 

the  principal  holders  of  Argentine  securities  were  small 
investors  who  were  scattered  throughout  the  country,  and 
for  this  reason  could  not  through  the  sale  of  their  holdings 
exert  a  dangerous  pressure  upon  the  stock  market.  Con- 
sequently German  financial  houses  were  not  directly 
threatened  by  the  turn  of  affairs  in  Argentina.  The  Ger- 
man stock  and  money  markets,  however,  were  indirectly 
affected  by  the  embarrassment  and  liquidation  in  Great 
Britain  following  the  failure  of  Baring  Brothers.  In 
October,  1890,  the  discount  rate  of  the  Reichsbank  was 
raised  from  4  to  5  per  cent.  In  November  it  advanced  to 
5|  per  cent,  and  remained  at  that  point  during  the  rest 
of  the  year.  During  these  months  also  the  market  rate 
was  almost  equal  to  the  bank  rate.  But  the  action  of  the 
Reichsbank  in  lowering  its  rate  of  discount  in  March, 
1890,  as  already  pointed  out,  had  been  followed  by  a  restric- 
tion of  speculation  and  a  fall  in  stock  values.  The  market 
value  of  the  total  shares  of  industrial  companies  traded 
in  at  Berlin  from  January  to  November,  1890,  declined 
over  21  per  cent.  During  the  same  period  there  was  a  fall 
of  more  than  10  per  cent,  in  the  value  of  bank  shares. 
After  November,  1890,  conditions  in  Great  Britain  gave 
a  further  impetus  to  the  downward  movement,  and  a  sharp 
decline  was  experienced  in  all  descriptions  of  securities. 
Beyond  this  depression  in  the  stock  market,  however,  no 
adverse  results  followed.  The  influence  of  affairs  in  Great 
Britain  during  the  autumn  of  1890  only  served  to  increase 
the  dragging  liquidation  and  depression  which  had  been 
apparent  in  Germany  from  the  beginning  of  the  year. 

On  the  other  hand,  the  situation  in  Great  Britain  had  no 
permanently  injurious  effect  upon  conditions  in  France. 
The  caution  of  French  investors,  together  with  the  losses 
of  the  country  in  the  copper  speculation  and  the  Panama 
Canal  Company,  had  saved  France,  as  already  pointed  out, 
from  the  financial  excesses  for  which  Germany  and  Great 
Britain  were  being  punished.     The  gold  reserves  of  the 


THE  PANIC   OF   1890  71 

Bank  of  France  were  ample,  and  in  addition  to  the  assist- 
ance rendered  to  the  Bank  of  England  by  the  loan  of 
£3,000,000  of  gold,  £2,000,000  of  that  metal  was  sold  to 
the  Credit  Lyonnais  to  strengthen  its  London  branch. 
For  a  time  prices  on  the  Bourse  moved  downward  in 
sympathy  with  the  British  market.  This  tendency  was 
especially  noticeable  in  the  case  of  Argentine  national 
and  provincial  bonds,  and  in  the  shares  of  French  banks 
which  were  supposed  to  have  assisted  in  the  flotation  of 
Argentine  securities.  Within  a  few  weeks,  however, 
there  was  a  full  recovery,  and  French  bank  and  industrial 
shares  showed  a  substantial  increase  in  value  for  the 
year.^  As  a  matter  of  fact,  French  investors  profited  by 
the  depressed  stock  values  in  Germany  and  Great  Britain 
by  making  heavy  purchases  of  securities  in  London  and 
Berlin.  From  an  industrial  and  commercial  point  of  view 
the  year  1890  was  also  satisfactory  to  France.  Foreign 
trade  in  both  imports  and  exports  was  increased,  and 
receipts  from  railroad  traffic  showed  widespread  activity 
in  trade  and  industry.^  All  the  visible  elements  of  national 
prosperity,  in  brief,  gave  evidence  of  a  decided  improve- 
ment. 

The  collapse  in  Argentine  speculation  had  thus  brought 
about  a  financial  breakdown  and  forced  liquidation  in 
Great  Britain,  and  had  added  indirectly  to  the  depression 
of  stock  values  and  the  dragging  liquidation  which  was 
already  in  progress  in  Germany.  On  the  other  hand, 
France,  because  of  her  previous  freedom  from  speculation, 
had  not  sufi^ered  any  considerable  losses.  It  now  remains 
to  be  seen  what  efl'ect  this  condition  of  affairs  in  Great 
Britain  and  Germany  had  upon  the  financial  situation  in 
the  United  States. 

As  a  matter  of  fact,  the  financial  breakdown  in  Great 
Britain  was  of  very  serious  significance  to  this  country. 

*  The  Economist  (London),  vol.  xlix  (January  3,  1891),  p.  11. 
'^  Ibid.  vol.  xlviii  (December  2,  1890),  p.  1541. 


72         THE   CAUSES  OF  THE  PANIC  OF   1893 

In  a  previous  chapter  ^  it  was  shown  that  during  the  period 
1886-90  the  United  States  had  purchased  enormous 
quantities  of  merchandise  in  the  United  Kingdom.  Pay- 
ments for  this  merchandise  had  been  made  in  American 
securities,  chiefly  in  the  form  of  American  negotiable 
railroad  stocks  and  bonds.  Our  abnormal  excess  of  mer- 
chandise imports  during  the  years  preceding  1890  repre- 
sented, therefore,  capital  largely  invested  by  Great  Britain 
in  American  railroads. 

As  a  result  of  the  liquidation  in  Great  Britain  during 
the  year  1890,  this  capital,  as  might  be  expected,  was  re- 
called. Underwriters  and  investors  in  Great  Britain,  as 
already  seen,  owing  to  the  growing  distrust  of  Argentine 
issues  during  the  first  three  quarters  of  1890,  were  forced 
to  sell  first-class  securities  in  order  to  realize  funds  to  pre- 
vent the  sacrifice  of  their  speculative  holdings.  A  con- 
siderable percentage  of  the  securities  which  were  thus 
offered  for  sale  were  the  negotiable  American  railroad 
securities  which  had  been  absorbed  by  Great  Britain 
during  the  period  1886-90.  These  were  at  once  returned 
to  the  United  States.  During  the  forced  and  volun- 
tary liquidation  which  followed  the  suspension  of  Bar- 
ing Brothers,  a  constantly  increasing  volume  of  Ameri- 
can securities  were  sent  back  to  this  country  by  Great 
Britain  to  be  sold.  British  capital  commitments  in  the 
United  States  also  ceased.  As  a  result  of  this  action  by 
Great  Britain,  gold  flowed  out  of  the  United  States.  The 
net  exports  of  that  metal  from  this  country  during  the 
two  months  prior  to  August  10  amounted  to  $16,000,000. 

This  outflow  of  gold  occurred  at  a  time  when  the  banks 
of  the  United  States  were  not  in  a  position  to  stand  the  loss. 
The  industrial  activity  in  the  West  and  South  during  the 
early  half  of  the  year  1890  had  been  attended  with  heavy 
demands  for  funds.  At  the  same  time,  the  bank  reserves 
of  the  New  York  City  banks,  which  had  almost  reached 
the  minimum  limit  of  25  per  cent,  of  deposits  at  the  close 
*  Chapter  I. 


THE  PANIC   OF   1890 


73 


of  1889,  still  continued  at  this  low  level  during  the  first 
half  of  the  year  1890.  On  the  16th  of  August  the  bank 
surplus  in  New  York  fell  below  the  legal  requirement. 
From  that  time  a  deficit  was  shown  in  the  weekly  bank 
statements  of  the  New  York  banks  for  eleven  weeks  out  of 
the  twenty  remaining  to  the  end  of  the  year.  The  largest 
deficit  was  on  September  13,  when  it  reached  $3,306,900.^ 
Under  these  conditions,  the  hea\y  and  continuous  de- 
mand for  money  in  the  interior  of  the  country,  together 
with  the  withdrawal  of  gold  for  export,  soon  brought  about 
serious  trouble  in  the  American  money  market,  which  later 
developed  into  a  severe  stringency.  As  early  as  August  8 
rates  on  call  loans  advanced  to  20  and  25  per  cent.^  Two 
weeks  later  J  per  cent,  commission  a  day  was  paid  in 
addition  to  6  per  cent,  per  annum,  or  an  equivalent  of 
186  per  cent,  a  year.    For  two  weeks  during  the  middle  of 

^  The  amount  of  the  surplus  and  the  ratio  of  reserves  to  deposits  of  the 
New  York  Clearing-House  banks  appears  m  the  following  statement : 

NEW  YORK  CLEARING-HOUSE   BANKS  STATEMENT   (OOO's  omitted) 


Surplus  Reserve. 

Reserve  to 
Deposits. 

August 

2 

deficit 
deficit 
deficit 
deficit 
deficit 

deficit 
deficit 

deficit 
deficit 
deficit 

deficit 

$ 
8,959 
1,286 

655 
2,512 

536 
1,401 
3,306 
1,905 
14,075 
11,511 
3,155 

349 

124 

701 
2,544 

832 
89 

382 
2,429 

607 
4,498 
7,72p 

Per  cent. 
27.1 

9   

25.3 

16 

24.8 

23 

24.3 

30 

24.8 

6 

24.6 

13 

24.1 

20 

25.4 

27  

28.4 

October 

4 

27.7 

11 

25.7 

18 

24. 

25 

24.9 

November 

1 

25.1 

8 

24.3 

15 

24.7 

22 

24.1 

29 

25.1 

December 

6 

24.3 

13 

25.1 

20 

26.1 

27 

27. 

The  quotations  for  prime  commercial  paper  in  the  New  York  money 


74 


THE  CAUSES  OF  THE  PANIC   OF   1893 


September,  and  for  a  similar  period  after  news  of  the 
Baring  failure  in  England,  the  same  extraordinary  rates 
were  demanded.  Finally,  the  New  York  banks  resolved 
to  relieve  the  existing  stringency  by  the  emergency  oper- 
ation of  issuing  Clearing-House  certificates.  The  first 
certificates  were  authorized  by  the  New  York  Clearing- 
House  Association  on  the  11th  of  November.  After  that 
date  further  issues  were  made  in  accordance  with  the 
demand.  The  maximum  amount  outstanding  at  one  time 
was  on  December  13,  when  there  were  $15,205,000.  By 
the  end  of  the  year  this  amount  had  been  reduced  to 
$12,995,000.  Clearing-House  certificates  were  also  author- 
ized in  Boston  on  November  17,  and  in  Philadelphia  on 
November  18.  The  maximum  issue  in  the  former  city 
was  $5,065,000,  and  in  the  latter  $8,870,000.^ 

This  extraordinary  stringency  in  the  money  market  was 
attended  by  commercial  and  financial  disaster.  The  agita- 
tion of  the  silver  question  in  Congress  during  the  early 
part  of  1890  had  been  followed  by  speculation  in  silver 
bullion  and  silver  stocks.  This  movement  soon  spread  to 
other  departments  of  the  stock  market,  and  finally  attained 
the  proportion  of  a  general  boom  in  stock  values  which 


market  from  August  to  December,  1890,  as  reported  by  The  Commercial 
and  Financial  Chronicle,  ranged  from  6  to  9  per  cent.  Quotations  for 
call  loans  during  the  same  period  were  as  follows: 


Week 

Week 

ending 

Call  Loans. 

ending 

Call  Loans. 

Friday. 

Friday. 

Aug.     1 

2  and   6 

Oct.    17 

2J  and  6 

8 

3            20 

24 

3 

8 

15 

3            25 

31 

3 

30 

22 

3           6+  i  per  day. 

Nov.    7 

3 

25 

29 

2            15 

14 

2i 

6+  h  per  day. 

Sept.    5 

3            12 

21 

2 

6+  J  per  day. 

12 

3            6+  i  per  day. 

28 

2 

8+  i  per  day. 

19 

2            6+  i  per  day. 

Dec.        5 

3 

15 

26 

2            6 

12 

2 

6+  }  per  day. 

Oct.     3 

2            6 

19 

2 

6 

10 

2i          7 

26 

3 

6 

^  Report  of  the  Comptroller  of  the  Currency,  Treasury  Report,  1891, 
pp.  327-30. 


THE  PANIC   OF   1890 


75 


reached  its  highest  point  during  the  month  of  May.* 
During  succeeding  months  stock  values  dechned  and  the 
hea^'y  selhng  of  securities  in  Great  Britain,  followed  by 
the  stringency  in  the  American  money  market,  was  quickly 
reflected  in  a  downward  movement  of  stock  values  in  the 
United  States.  The  range  in  price  during  the  year  1890 
of  the  leading  stocks  on  the  New  York  market  appears 
in  the  following  table: 

PRICES   OF   LEADING   STOCKS   IN   1890. 
(Fractional  part  of  quotations  omitted.) 


Opening 
(Jan.  1). 

Highest. 

Closing 
(Dec.Sl). 

101 

107  (May  23) 

92 

106 

111  (June  3) 

101 

147 

175  (May  14) 

132 

33 

50  (May  15) 

28 

117 

120  (Jan.  31) 

97 

30 

39  (June  10) 

21 

22 

24  (May  6) 

14 

30 

34  (May  19) 

16 

102 

108  (Jan.  21) 

70 

58 

95  (May  21) 

57 

83 

87  (May  14) 

76 

Railroads: 

Baltimore  and  Ohio 

N.  Y.  Central  and  Hudson 

Delaware  and  Hudson    

Atchison,  Topeka  and  Santa  Fe 

Illinois  Central 

Northern  Pacific 

Norfolk  and  Western 

Miscellaneous: 

American  Cotton  Oil  Trust .... 

Pipe  Line  Certificates 

Sugar  Trust 

Western  Union  Tel 


As  a  result  of  this  depression  in  stock  values,  stock 
operators  and  speculators,  who  had  loaded  up  with  large 
masses  of  securities  in  anticipation  of  a  silver  inflation, 
lost  immense  sums.  Many  brokers  and  investors,  together 
with  a  number  of  financial  houses,  owing  to  the  stringency 
of  the  money  market,  were  unable  to  secure  funds  to  pro- 
tect their  holdings,  or,  on  the  other  hand,  they  found  it 
necessary  to  dispose  of  first-class  securities  at  a  loss,  and, 
as  a  consequence,  were  forced  to  suspend  payments. 
Moreover,  many  importers  and  dealers,  as  weU  as  manu- 

^  During  the  month  of  May,  1890,  11,052,779  .shares  of  stock  of  a 
par  value  of  $1,051,139,065  and  an  actual  value  of  $628,978,858,  were 
sold  on  the  New  York  Stock  Exchange;  during  May,  1889,  7,155,711 
shares  of  a  par  value  of  $673,794,760  and  an  actual  value  of  $420,969, 966 
were  sold. 


76 


THE   CAUSES  OF  THE   PANIC   OF   1893 


facturers,  had  extended  their  credit  as  far  as  possible  in 
laying  in  stocks  of  commodities  in  anticipation  of  a  rise 
of  prices  after  the  enactment  of  the  McKinley  Tariff  Bill, 
In  many  cases  the  financial  stringency  prevented  them 
from  securing  funds  to  meet  their  obligations,  and  they 
also  were  driven  into  bankruptcy.  Finally,  the  high  rates 
for  loans  in  the  money  market  almost  amounted  at  certain 
periods  to  a  suspension  of  credit,  and  were  responsible  for 
the  failure  of  a  great  many  mercantile  houses  and  indus- 
trial establishments  which  were  dependent  upon  unin- 
terrupted accommodations,  and  which,  under  normal  con- 
ditions, would  have  had  small  difficulty  in  continuing  their 
operations.  The  number  of  mercantile  failures  reported 
during  the  year  was  10,907,  with  liabihties  of  $189,856,964. 
During  the  year  1889  the  number  of  failures  was  10,882, 
representing  liabilities  of  $148,784,337.1 

The  greater  number  of  failures  in  1890,  however,  did  not 
represent  any  serious  unsoundness  in  financial  and  com- 
mercial circles.  Interior  trade  was  active.  Bank  clearings 
and  railroad  earnings  were  also  larger  than  in  the  pre- 
ceding year.  Our  foreign  trade  showed  a  large  increase. 
The  production  of  iron  and  steel  was  greater  than  the 
output  during  the  year  1889.^  Moreover,  the  business 
failures  themselves  during  the  year  1890,  in  the  light  of 
the  stringency  in  the  money  market,  clearly  indicated  that 

'  The  Commercial  and  Financial  Chronicle,  Annual  Supplement, 
Financial  Review  of  1890,  p.  15. 

^  The  following  summary  furnishes  at  a  glance  a  brief  industrial  com- 
parison of  the  two  years  1889  and  1890  : 


Bank  clearings  in  the  U.  S 

Imports  of  merchandise 

Exports  of  merchandise 

Gross  earnings  of  railroads 

Pig-iron  produced  (tons  of  2000  lbs.) 

Steel  rails  produced  (tons  of  2240 

lbs.) 


1889. 


1,175,327,997 
770,521,965 
827,106,347 
991,935,331 
8,516,079 

1,403,700 


$60,117,891,393 

823,318,782 

857,623,677 

1,086,039,735 

10,307,028 

1,522,204 


THE  PANIC   OF   1890 


77 


industry  and  business  were  in  a  safer  position,  and  con- 
ducted on  a  wider  margin,  than  during  the  preceding  year. 
This  fact  becomes  apparent  from  a  comparison  of  the 
failures  of  the  first  three-quarters  of  each  year  during  the 
two  years  1888-90. 


First  Nine  Months  of 

Number  of 
Failures. 

Amount  of 
Liabilities. 

1890 

7581 

7879 

$100,771,820 
105,055,898 

1889 

From  these  figures  it  is  evident  that  the  proportion  of 
casualties  during  the  first  three-quarters  of  1890  was  less, 
although  the  strain  was  greater  than  during  the  previous 
year.  The  latter  quarter  of  1890  was,  of  course,  marked 
by  exceptional  conditions,  and  the  number  of  failures 
as  compared  with  previous  years  was  greatly  increased. 
It  was  due  to  the  solid  position  of  our  industries,  however, 
that  the  financial  breakdown  in  the  latter  part  of  the  year 
was  not  more  widespread  and  disastrous.  At  the  same 
time,  the  fact  that  the  industrial  and  business  collapse  had 
not  been  more  extended  furnished  hope  that  the  country 
would  not  be  long  in  recovering  from  the  effect  of  the 
panic. 

Great  Britain  and  Germany,  however,  continued  their 
process  of  liquidation,  and  the  effect  was  keenly  felt  in  the 
United  States.  Temporary  respite  from  the  stringent 
condition  of  the  money  market  was  obtained  during  the 
early  part  of  December,  1890,  by  the  importation  of 
$5,000,000  in  gold  from  abroad.  During  the  first  half  of  the 
year  1891  the  money  market  was  also  much  easier,  and 
there  was  never  any  recurrence  of  the  extraordinary  rates 
for  call  loans  which  had  prevailed  during  the  preceding 
six  months.  American  securities,  however,  continued  to 
be  returned  by  Great  Britain.     Although  Great  Britain 


78         THE  CAUSES  OF  THE  PANIC   OF   1893 

and  Germany  were  recovering  from  the  effects  of  the 
Baring  panic,  confidence  in  foreign  investments  had  not 
returned.  Consequently  there  was  no  demand  from 
abroad  for  American  securities,  but  on  the  contrary  a 
constant  effort  to  get  rid  of  them.  Imports  of  merchandise 
into  the  United  States  were  also  heavy  during  the  first 
half  of  1891,  owing  to  the  fact  that  some  of  the  schedules  of 
the  McKinley  Law,  such  as  the  duties  on  tinplate,  did  not 
go  into  effect  until  the  middle  of  the  year.  Because  of  the 
small  crops  of  1890  and  the  lessened  European  demand, 
the  exports  of  agricultural  products  from  the  United 
States  were  not  sufficient  to  offset  these  two  tendencies  in 
the  international  trade  situation.  The  result  was  an  out- 
flow of  gold  from  the  United  States  which  lasted  from 
February  to  late  in  the  month  of  July,  1891.^  There  was 
also  depression  in  business  and  industry,  and  the  decline 
in  stock  values  continued  until  a  very  low  level  was  reached. 
During  the  first  half  of  1891  there  were,  in  short,  no  indi- 
cations of  relief  in  the  United  States  from  the  indirect 
but  evil  effects  which  had  grown  out  of  the  Argentine 
collapse  and  the  Baring  failure. 

*  The  net  total  of  gold  exported  during  these  months  was  $72,786,666. 


CHAPTER   VI 

BECOVERY     FROM     THE     PANIC     OF     1890    AND     FINANCIAL 
CONDITIONS     IN    THE    UNITED    STATES,    1891-93 

The  Extraordinary  Grain  Crop  of  1891  in  the  United  States.  —  Heavy  Exports 
of  Grain  from  the  United  States  in  the  Face  of  a  European  Harvest  Shortage. 

—  Imports  of  Gold  and  Recovery  from  the  Previous  Financial  Depression. 

—  Appropriations  of  the  Fifty- First  Congress.  —  Increase  in  Circulation  of 
the  Country  through  Government  Extravagance  and  Issue  of  Treasury 
Notes.  —  Increase  in  Legal-Tender  Holdings  of  New  York  Banks.  —  Legal- 
Tender  Notes  used  in  the  Payment  of  New  York  Clearing-House  Balances.  — 
Increased  Percentage  of  Legal-Tender  Notes  used  in  the  Payment  of  Customs 
Duties.  —  The  Payment  of  Government  Balances  at  the  New  York  Clearing- 
House  in  Greenbacks  and  Treasury  Notes.  —  Withdrawal  of  Foreign  Capital 
and  Exports  of  Gold  from  the  Country.  —  Presentment  of  Greenbacks  and 
Treasury  Notes  at  the  Treasury  for  Redemption.  —  Decline  of  the  Treasury 
Gold  Reserve  below  the  Statutory  Minimum,  and  the  General  Distrust  over 
the  Currency  Situation. 

After  the  first  of  August,  1891,  a  fortunate  turn  in  the 
international  grain  situation  brought  about  a  radical 
change  in  the  depressed  conditions  which  had  prevailed 
in  the  United  States  during  the  preceding  nine  months. 
The  wheat  crop  of  1891  in  the  United  States  was  the  larg- 
est up  to  that  time  which  had  ever  been  growTi.  The  re- 
turns show^ed  a  yield  of  611,780,000  bushels  in  1891  against 
399,262,000  bushels  in  1890.  The  same  remarkable  in- 
crease was  also  true  of  the  corn  and  oats  crop.  Moreover, 
the  cotton  crop  in  1891  was  unprecedented.^  The  most 
significant  feature  in  the  situation,  however,  lay  in  the 
fact  that  this  extraordinary  increase  in  the  production  of 
cotton  and  cereals  in  the  United  States  was  coincident  with 
a  shortage  in  European  harvests.     The  Russian  wheat 

1  The  yield  of  corn  in  the  United  States  in  1891  was  2,009,154,000 
bushels  against  1,489,970,000  bushels  in  1890;  the  vield  of  oats  in  1891 
was  738,394,000  bushels  against  523,621,000  bushels^n  1890.  The  cotton 
crop  in  1891  was  9,038,707  bales  against  8,655,618  bales  in  1890,  and 
7,313,726  bales  in  1889. 


80         THE   CAUSES  OF  THE  PANIC  OF   1893 

crop,  which,  next  to  that  of  the  United  States,  was  most 
largely  depended  upon  by  European  consumers,  was  al- 
most a  total  failure.  The  grain  shortage  in  France  was  one 
of  the  most  serious  in  the  history  of  the  country.  The 
Russian  Government  issued  a  ukase  against  the  export  of 
rye  on  August  10,  and  another  against  the  export  of  wheat 
on  November  21.  A  decree  removing  the  import  duty  on 
wheat  was  also  promulgated  in  France.  The  market  for 
American  grain  was  therefore  broad  and  eager.  On  ac- 
count of  the  small  crops  of  the  two  years  1889  and  1890  the 
European  demand  for  American  cereals  quickly  developed 
and  the  pressure  of  export  grain  from  the  United  States 
during  the  autumn  of  1891  was  very  great.  The  export 
of  breadstuffs  almost  equaled  the  enormous  outward 
trade  during  the  year  1879-80  following  the  resumption 
of  specie  payments.* 

Under  these  conditions,  a  radical  change  in  the  inter- 
national trade  situation  quickly  developed.  Exports  of 
gold  ceased  in  July.  Although  imports  of  merchandise 
into  the  United  States  increased,  the  trade  balance  during 
August  turned  sharply  in  favor  of  this  country.  From  that 
time  until  the  end  of  the  year  the  net  importation  of  gold 
amounted  to  about  $37,500,000.2  ^j^j^  ^.j^jg  [^^^^  of  gold 
into  the  country,  the  bank  reserves  became  ample  and 
the  money  market  easy.  As  a  matter  of  fact,  the  absence 
of  the  usual  stringency  in  the  New  York  money  market 
during  the  closing  months  of  the  year  was  quite  notable, 
call  loans  ranging  in  December  from  2  to  4  per  cent. 
Improvement  in  the  prices  of  stocks  and  bonds  also  began 
early  in  August,  and  except  for  a  downward  turn  in  the 
months  of  October  and  November,  there  was  a  steady 
gain  in  values.  Quotations  stood  at  a  much  higher  point 
at  the  closing  of  the  year  than  at  the  opening.     Great 

*  Sfafistical  Absirad  of  the  United  States,  1903,  p.  337,  Department 
of  Commerce  and  Labor,  Washington. 

^  Report  of  the  Secretary  of  the  Treasury,  1892,  p.  258. 


CONDITIONS  IN   UNITED    STATES  —  1891-93    81 

Britain,  owing  to  the  disclosures  which  had  followed  the 
Baring  liquidation,  had  not  recovered  full  confidence  in 
foreign  securities,  and  the  new  capital  commitments  in 
London  were  small  in  comparison  with  previous  years. 
At  the  same  time,  conditions  were  so  improved  in  the 
United  Kingdom  that  it  was  no  longer  necessary  to  recall 
British  capital  invested  in  America.^  On  the  contrary, 
Great  Britain  was  a  purchaser  of  American  securities 
during  August  and  September,  1891,  and  during  the 
month  of  December  there  was  a  marked  advance  in 
American  railroad  issues  on  the  London  Stock  Exchange.^ 
While  the  heavy  exports  of  grain  did  not  affect  very 
sharply  the  interior  trade  situation  in  the  United  States, 
beyond  adding  to  the  transportation  business,  the  pros- 
pects of  increased  activity  and  better  prices  were  very 
bright.  The  iron  and  steel  trade  also  showed  signs  of 
expansion  as  early  as  August,  and  in  the  latter  part  of 
the  year  more  furnaces  went  into  blast  and  the  demand 
for  iron  and  steel  products  constantly  grew  larger.^  On 
all  sides  there  were  indications  of  a  revival,  and  of  a  com- 
plete recovery  from  the  previous  financial  depression. 
The  extraordinary  American  grain  crop,  in  brief,  in  the 
face  of  an  extensive  European  demand,  furnished  an 
unprecedented  basis  for  a  healthy  industrial  and  trade 
expansion,  and,  if  the  finances  of  the  United  States  had 
been  in  a  sound  condition,  the  country  would  have  probably- 
entered  upon  a  period  of  unsurpassed  prosperity.  As  it 
w^as,  however,  the  natural  economic  development  of  the 
country  at  this  time  was  checked,  and  finally  subverted,]' 
by  the  evil  effects  of  the  previous  silver  legislation  and  the 
general  fiscal  policy  of  the  Harrison  Administration. 
It  was  pointed  out  in  a  previous  chapter  that  the  Har- 

*  "  Commercial  History  and  Review  of  1891,"  Annual  Supplement  to 
The  Economist  (London),  vol.  50. 

^  The  Economist  (London),  vol.  49  (December  26,  1891).  p.  1651. 

^  "The  Financial  Review  of  1891,"  Annual  Supplement  to  The  Com- 
mercial and  Financial  Chronicle,  p.  1. 


82         THE   CAUSES  OF  THE  PANIC   OF  1893 

rison  Administration,  when  it  assumed  control  of  the  Gov- 
ernment, in  1889,  adopted  a  twofold  policy  for  the  purpose 
of  getting  rid  of  the  surplus  revenue  which  during  the  years 
preceding  1890  had  been  a  marked  feature  of  the  fiscal 
situation.*  On  the  one  hand,  the  McKinley  Bill  was  so 
framed  as  to  eliminate  some  of  the  most  productive 
sources  of  public  revenue,  such  as  the  receipts  from  duties 
on  sugar.^  On  the  other  hand,  Congress  was  encouraged 
to  enter  upon  a  course  of  increased  expenditures.  The 
Fiftieth  Congress,  as  already  seen,  was  not  slow  in  putting 
the  latter  part  of  this  policy  into  operation,  and  had 
greatly  increased  the  annual  appropriations  of  the  Gov- 
ernment. But  its  successor,  the  Fifty-First  Congress, 
which  held  its  sessions  during  the  two  years  1891  and 
1892,  went  even  further  in  the  way  of  Government  extrava- 
gance. During  its  first  session  it  raised  the  annual  outlay 
for  pensions  over  $16,000,000,  and  during  its  second  ses- 
sion added  a  further  increase  of  more  than  $46,000,000. 
It  ran  up  appropriations  for  rivers  and  harbors  almost 
$6,000,000.  It  also  authorized  about  $3,000,000  additional 
for  forts  and  fortifications.  Similar  increases  were  made 
in  the  provisions  for  the  various  permanent  departments 
of  the  Government.  Every  committee  seemed  to  make  its 
calculations  with  the  idea  that  there  was  an  unlimited 
fund  upon  which  to  draw.  The  total  budget  for  the  year 
1891  was  more  than  69  million  dollars  larger  than  that  for 
1890;  and  the  total  outlay  for  1892  was  36  million  dollars 
greater  than  that  for  1891.  The  combined  appropriations 
of  the  Fifty-First  exceeded  those  of  its  predecessors  by 
more  than  148  millions.^ 

This  extravagant  policy  soon  had  the  desired  result. 
Under  its  operation   the  surplus   revenue  was  not  only 

*  See  p.  14. 

^  It  provided  also  for  the  payment  of  a  bounty  to  producers  of 
domestic  sugar. 

^  An  itemized  statement  of  the  appropriations  of  Congress  during  the 
period  1890-93  is  to  be  had  in  the  Report  of  the  Secretary  of  the  Treas- 
ury, 1893,  p.  cxvi. 


CONDITIONS  IN   UNITED    STATES— 1891-93     83 

wiped  out,  but  the  Treasury  was  even  threatened  with  a 
deficit.  As  early  as  April,  1891,  the  Treasury  was  forced 
to  suspend  the  redemption  of  the  public  debt,  except  such 
an  amount  as  was  necessary  to  meet  the  sinking  fund 
requirement.^  Moreover,  all  the  demands  upon  the  Treas- 
ury which  were  not  compulsory  were  refused.  Despite 
.  these  and  similar  expedients,  however,  there  was  a  Treas- 
ury deficit  of  more  than  $1,000,000  during  the  fourth 
quarter  of  the  fiscal  year  1891.^  Larger  deficits  occurred 
during  the  second  and  fourth  quarters  of  1892.^  Fortu- 
nately, in  each  of  these  cases  an  expansion  of  revenues 
during  the  other  periods  of  the  year  prevented  an  annual 
deficit  in  Government  receipts  as  compared  with  expend- 
itures. 

But  not  only  the  extravagance  of  Congress  caused  a 
serious  diminution  in  Government  resources.  The  in- 
creased disbursements  of  the  Government,  by  dissipating 
the  surplus  revenue  which  would  have  otherwise  accu- 
mulated in  the  Treasury,  also  added  largely  to  the  amount 
of  money  in  circulation.  At  the  same  time  a  steady  stream 
of  Treasury  notes,  through  the  operation  of  the  Sherman 
Act  of  1890,  was  being  poured  into  the  circulation  of  the 
country.  This  law,  as  already  seen,  authorized  the  pur- 
chase of  4,500,000  ounces  of  silver  each  month,  to  be 
paid  for  in  legal-tender  Treasury  notes,  and  was  practically 
equivalent  to  guaranteeing  an  increase  in  the  circulating 
medium  of  something  like  $50,000,000  annually.^  Alto- 
gether, as  a  result  of  the  silver  issues  of  the  Treasur\%  and 
of  the  increased  expenditures  of  the  Government,  the  money 
in  circulation  in  the  United  States  during  the  eighteen 
months  ending  December  31,  1891,  had  been  increased  to 
the  extent  of  $172,276,526.     Within  the  last  six  months 

*  Report  of  fhe  Secretary  of  the  Treasury,  1891,  p.  xxvi. 
2  Ihid.,  p.  233.  ^  Ibid.,  1892,  p.  30. 

*  At  the  end  of  the  fiscal  year  1891  there  were  oiitstiuidiiif!;  $50,228,417 
of  Treasury  notes  of  1890.  At  tlie  end  of  the  fiscal  year  1892  this 
amount  had  been  increased  to  $100,863,230.  —  Report  of  tJic  Secretary 
of  the  Treasury,  1892,  p.  61. 


84         THE   CAUSES  OF  THE  PANIC   OF   1893 

of  this  period,  —  between  July  1,  1891,  and  January  1, 
1892,  —  the  circulating  medium  of  the  country  under- 
went an  expansion  of  $104,207,636.* 

If  the  forms  of  money  which  were  thus  used  to  increase 
the  circulation  had  been  of  a  sound  character,  or  if  the 
state  of  business  and  trade  —  the  increase  of  small  cash 
transactions  —  had  been  such  as  to  demand  more  money, 
there  would  have  been  no  serious  significance  attached 
to  this  extraordinary  expansion  of  the  circulating  medium 
of  the  country.  As  it  was,  however,  the  difficulty  pre- 
viously experienced  by  the  Treasury  officials,  even  dur- 
ing the  exceptionally  prosperous  period  1886-90,  in  main- 
taining in  circulation  the  silver  certificates  authorized  by 
the  Act  of  1878,  pointed  to  the  fact  that  any  arbitrary 
increase  in  the  currency,  such  as  the  automatic  issue  of 
$50,000,000  of  Treasury  notes  each  year,  would  be  at- 
tended with  much  hazard. 

Unfortunately  for  the  country,  this  inherent  danger  in 
the  operation  of  the  Sherman  Law  soon  made  itself  evident. 
The  business  activity  which  attended  the  harvesting  and 
marketing  of  the  enormous  grain  crop  of  1891  absorbed 
for  a  time  the  increased  circulating  medium  of  the  country. 
Owing  to  the  urgent  demand  of  the  European  market, 
however,  the  movement  of  the  season's  crop  and  the  ex- 
port of  grain  was  over  at  an  earlier  date  than  usual.  With 
the  European  buyers  of  grain  thus  satisfied,  the  harvest 
trade  contracted,  and  the  Western  banks  at  once  found 
their  vaults  full  of  idle  currency.  In  November,  1891, 
this  currency  began  to  move  East  in  great  quantities.  The 
supply  of  currency  in  New  York  immediately  showed  an 
increase.  The  tendency  of  most  serious  import  in  con- 
nection with  the  movement  soon  became  apparent  in  the 
rapid  growth  in  the  legal-tender  holdings  of  the  New  York 
banks.  Prior  to  the  passage  of  the  Silver  Law  of  1890  their 
legal-tender  holdings  had  never  exceeded  the  demands 
•  Report  of  the  Secretary  of  the  Treasury,  1892,  p.  103. 


CONDITIONS    IN    UNITED    STATES  —  1891-93     85 

of  their  customers.  Beginning  with  the  autumn  of  1891, 
however,  each  succeeding  harvest  season  was  followed  by 
the  movement  of  an  increased  amount  of  greenbacks  and 
Treasury  notes  of  1890  from  the  interior  to  the  East.  This 
tendency  is  apparent  from  the  following  table  showing  the 
legal-tender  holdings  of  the  New  York  Clearing-House 
banks  from  November,  1891,  to  June,  1893:^ 

LEGAL-TENDER    HOLDINGS    OF    NEW    YORK    CLEARING-HOUSE 
BANKS,  1891-93  (OOO's  omitted) 


I'irst  Week  of 

November, 

1890, 

$22,101 

December, 

1890, 

23,963 

January, 

1891, 

26,571 

June, 

1891, 

6,687 

January, 

1892, 

37,814 

June, 

1892, 

55,159 

August, 

1892, 

60,278 

January, 

1893, 

46,157 

June, 

1893, 

58,683 

This  accumulation  of  greenbacks  and  Treasury  notes 
of  1890  in  the  New  York  banks  would  ordinarily  have  had 
no  significance  beyond  the  fact  that  the  currency  of  the 
country  was  greatly  in  excess  of  the  needs  of  trade.  Under 
the  operation  of  the  silver  legislation  of  1890,  however,  the 
situation  was  one  of  serious  import.  Bankers  soon  realized 
that  under  the  Sherman  Law  of  1890  there  was  no  limit  to 
this  increase  in  their  legal-tender  holdings.  On  the  con- 
trary, the  limit  of  their  gold  reserves  might  be  reached  in 
a  single  season.  To  protect  their  depositors,  therefore, 
they  sought  to  retain  their  gold  reserves  and  to  get  rid  of 
as  large  an  amount  of  their  legal-tender  holdings  as  pos- 
sible. The  Treasury  notes  of  1890,  as  already  seen,  were 
redeemable  in  gold  and  were  available  for  all  banking 
purposes.  Consequently  they  could  not  be  excluded  from 
settlements  at  the  New  York  Clearing-House,  as  had  hap- 
pened in  the  case  of  the  silver  certificates  authorized  by 

^  Compiled  from  Clearing-House  Statements  published  in  The  Com- 
mercial and  Financial  Chronicle. 


86         THE   CAUSES  OF  THE  PANIC   OF   1893 

the  Act  of  1878.  The  result  was  an  increasing  use  of  Treas- 
ury notes  and  greenbacks  in  settlements  between  the 
banks.  In  1890  the  legal-tender  notes  had  been  used  in 
the  payment  of  only  one  per  cent,  of  New  York  Clearing- 
House  balances.  In  1891  thirty-five  per  cent,  of  the  bal- 
ances were  paid  in  legal  tenders.  During  the  year  1892 
the  percentage  of  legal-tender  payments  had  risen  to  fifty- 
seven  and  a  half. 

The  next  step  taken  by  the  banks  to  reduce  their  sup- 
plies of  legal  tenders  was  one  which,  as  already  pointed 
out,  was  taken  during  the  two  years  1884  and  1885, 
when  the  silver  circulation  under  the  Act  of  1878  became 
redundant.  It  consisted  in  working  off  on  the  Treasury 
silver  issues  and  greenbacks  by  way  of  the  customs 
revenue.  During  the  first  six  months  of  1890  about 
ninety  per  cent,  of  the  customs  revenue  at  New  York 
was  received  in  gold.  During  the  subsequent  two  years 
the  percentage  of  payments  in  gold  steadily  decreased. 
In  June,  1891,  gold  coin  and  certificates  formed  only 
about  twelve  per  cent,  of  the  total  receipts ;  in  June, 
1892,  they  were  eight  per  cent.;  in  December,  1892,  four 
per  cent.;  and  by  the  end  of  April,  1893,  gold  payments 
practically  ceased.  Gold  was  thus  gradually  displaced  in 
the  Government  customs  receipts  by  silver  certificates, 
Treasury  notes  of  1890,  and  greenbacks.  As  early  as 
June,  1891,  forty-four  per  cent,  of  the  customs  duties  at 
New  York  were  paid  in  greenbacks  and  twenty-nine  per 
cent,  in  Treasury  notes.  In  June,  1892,  forty-nine  per 
cent,  of  the  customs  revenues  were  received  in  Treasury 
notes  and  twenty-six  per  cent,  in  greenbacks.  During  the 
year  1892,  as  a  whole,  and  the  first  quarter  of  1893,  about 
seventy-five  per  cent,  of  the  customs  revenues  came  in  the 
shape  of  greenbacks  and  Treasury  notes.  From  June, 
1892,  a  constantly  increasing  percentage  of  payments  was 
also  made  with  silver  certificates.^  The  percentage  of  the 
*  Report  of  the  Secretary  of  the  Treasury,  1893,  p.  36. 


CONDITIONS    IN   UNITED   STATES  —  1891-93     87 

various  kinds  of  money  used  for  customs  payments  at 
New  York  is  graphically  exhibited  in  the  following 
chart :  * 


KINDS  OF  MONEY  RECEIVED  IN  MONTHLY  PAYMENTS 

FOE  CUSTOMS  AT  NEW  YORK.  BY  PBECKNTAOES 


jlTreaBury  Notes  and 
3  UnitedStates  Notes. 
fGold  Coin  and 
|.Gold  Certificates, 


Silver  Coin  and 
Silvei^eitlficates. 


The  tendency  of  this  flow  of  greenbacks,  Treasury 
notes,  and  silver  certificates  into  the  customs  revenue  was 
to  place  the  Treasury  in  the  same  embarrassing  position 
it  had  occupied  during  the  two  years  1884  and  1885,  when 
its  receipts  of  gold  were  displaced  by  silver  certificates,  and 
the  maintenance  of  its  gold  reserve  was  endangered  by 
disbursements  of  gold  to  meet  Government  obligations. 
But  the  Treasury  notes  of  1890,  as  already  seen,  were 
entirely  different  from  the  silver  certificates  in  that  they 

^  This  chart  is  a  partial  reproduction  of  Chart  I  of  the  Report  of  the 
Indianapolis  Monetary  Commission. 


88          THE   CAUSES  OF  THE  PANIC   OF   1893 

were  available  for  the  payment  of  Clearing-House  bal- 
ances. Secretary  Foster,  therefore,  when  confronted  with 
a  rapid  shrinkage  of  gold  receipts  and  the  consequent 
possibility  of  a  fall  in  the  Treasury  gold  reserve  to  the 
danger-point,  decided  that  the  Government's  own  dis- 
bursements should  be  stopped.  Accordingly,  during  the 
fiscal  years  1891  and  1892  a  constantly  decreasing  amount 
of  gold  was  paid  into  the  New  York  Clearing-House  in 
settlement  of  balances  against  the  New  York  Subtreasury. 
After  December,  1892,  gold  payments  to  the  New  York 
Clearing-House  were  practically  abandoned.  On  the  other 
hand,  during  the  fiscal  year  1891,  $31,957,946  in  Treas- 
ury notes  were  used  in  the  payment  of  Clearing-House 
balances.  In  the  fiscal  year  1892  the  amount  of  Treasury 
notes  used  for  this  purpose  was  increased  to  $57,826,734. 
A  large  volume  of  greenbacks  during  these  two  years  was 
also  sent  to  the  Clearing-House  by  the  Government.  From 
June,  1892,  to  July,  1893,  the  settlement  of  Government 
balances  was  almost  exclusively  effected  in  these  two 
forms  of  currency.^ 

Gold  was,  therefore,  hoarded  both  by  the  Government 
and  by  the  banks.  At  the  same  time,  as  already  pointed 
out,  fresh  supplies  of  gold  for  the  Treasury  were  cut  off 
through  the  displacement  of  gold  in  the  customs  receipts 
by  Treasury  notes,  greenbacks,  and  silver  certificates. 
As  a  consequence,  the  net  amount  of  gold  in  the  Treasury 
steadily  declined  (see  Chart  II,  p.  93),  and  apprehension 
began  to  be  felt  as  to  the  ability  of  the  Treasury  to  con- 
tinue gold  payments  unless  the  existing  drain  upon  its 
reserves  was  stopped.  This  apprehension  soon  affected 
foreigners  who  had  funds  invested  in  the  United  States. 
The  embarrassment  in  Great  Britain  following  the  Baring 
disaster  had  disappeared  by  the  autumn  of  1891,  as  al- 
ready seen,  and  the  process  of  sending  securities  to  the 
United  States  to  relieve  Great  Britain's  financial  neces- 
'  Report  of  the  Secretary  of  the  Treasury  (Finance),  1893,  p.  40. 


CONDITIONS    IN    UNITED    STATES  —  1891-93     89 

sities  had  long  since  ceased.  But  the  currency  situation 
in  the  United  States  had  been  viewed  with  alarm  by  Brit- 
ish investors  as  early  as  1891.^  The  continued  agitation 
of  the  silver  question  in  Congress  and  the  constant  fear 
that  a  free-coinage  silver  law  would  be  passed,  together 
with  the  attitude  of  the  United  States  in  the  Brussels 
Monetary  Conference  of  1892,  did  not  serve  to  lessen 
but  rather  to  increase  their  apprehensions.  In  its  issue 
of  February  20,  1892,  the  "London  Economist,"  in  dis- 
cussing Richard  P.  Bland's  report  on  a  free-coinage  meas- 
ure, made  the  following  comment  on  the  condition  of  the 
currency  in  the  United  States :  ^ 

"The  constant  agitation  on  the  question  [free  coinage  of  sil- 
ver], however,  is  proving  injurious  to  the  States.  It  frightens 
away  capital,  checks  enterprise,  and  paralyses  industry.  And 
now  that  the  Silver  party  have  openly  adopted  the  repudiation 
of  gold  contracts  as  the  chief  plank  in  their  platform,  its  deaden- 
ing and  depressing  influence  may  be  expected  to  become  still 
more  pronounced." 

Four  months  later  "The  Economist"  gave  expression 
to  the  increasing  apprehension  in  Great  Britain  relative 
to  the  currency  situation  in  this  country.  In  its  issue  of 
July  9,  1892,  it  said:^ 

"It  is  very  evident  that  if  the  Treasury  continues  to  lose  gold, 
and  at  the  same  time  piles  up  liabilities  payable  in  gold  on  de- 
mand, as  it  has  been  doing  since  the  Act  of  1890  was  passed,  it 
is  likely  before  very  long  to  become  involved  in  serious  difficul- 
ties. ^Its  reserve  is  approaching  the  'apprehension  point,'  the 
point,  that  is,  at  which  people  will  begin  to  fear  that  its  stock  of 
gold  will  not  be  sufficient  to  meet  the  demands  that  may  be  made 
upon  it,  and  will  be  disposed  to  make  a  rush  to  convert  their 
notes,  lest,  if  they  delay,  conversion  will  be  impossible.    Already 

^  "  United  States  Currency  and  Finance,"  The  Economist  (London), 
vol.  49  (December  26,  1891),  p.  1648. 

^  "  The  Report  of  the  United  States  Coinage  Committee,"  The  Econo- 
mist (London),  vol.  50  (February  20,  1892),  p.  244. 

^  "United  States  Currency  and  Finance,"  The  Economist  (London), 
vol.  50,  p.  887. 


90 


THE  CAUSES  OF  THE  PANIC   OF   1893 


there  is  a  good  deal  of  nervousness,  as  is  shown  by  the  sensitive- 
ness of  the  American  stock  markets  to  the  continued  efflux  of 
gold  to  this  side.  .  .  .  The  States  thus  appear  to  be  drifting 
into  grave  monetary  trouble." 

Consequently,  when  gold  was  hoarded  by  the  United 
States  Government  and  the  New  York  banks,  and  when 
the  tendency  toward  an  embarrassment  of  the  Treasury 
became  more  and  more  pronounced,  British  and  other 
foreign  investors  in  American  securities  hastened  to  get 
rid  of  their  holdings  before  a  very  general  distrust  and 
large  sales  would  cause  a  fall  in  prices.  The  excess  of 
merchandise  exports  from  the  United  States  over  imports 
during  the  fiscal  year  1892  was  $202,000,000  in  round 
numbers,  and  yet  no  gold  was  sent  back  in  payment. 
Payments  were  made  by  the  return  of  American  securi- 
ties. Moreover,  there  was  an  excess  of  exports  over  im- 
ports of  gold  during  1892,  which  showed  that  even  the 
remarkable  credits  in  merchandise  which  we  had  accu- 
mulated abroad  were  not  sufficient  to  offset  the  withdrawal 
of  funds  from  the  United  States  by  foreign  investors. 
The  United  States  was  not  only  asked  to  settle  its  in- 
debtedness abroad,  but  foreign  creditors  also  refused  to 
make  any  further  commitments  of  capital  in  this  country. 
Under  the  pressure  of  these  conditions,  the  drain  of  gold 
from  the  country  during  subsequent  years  constantly  in- 
creased. The  exportation  and  importation  of  gold  and 
the  net  exportation  during  the  three  fiscal  years  1891-93 
was  as  follows: 

IMPORTS  INTO  AND  EXPORTS  OF  GOLD  FROM  THE  UNITED 
STATES,    1891-93. 


Year  ending  June  30. 

Imports. 

Exports. 

Excess  of 

Exports  over 

Imports. 

1891 

$18,232,567 
49,699,454 
21,174,381 

$86,362,654 

50,195,327 

108,680,844 

$68,130,087 

1892 

495,873 

1893 

87,506,463 

CONDITIONS  IN   UNITED   STATES  — 1891-93    91 

Up  to  the  end  of  the  fiscal  year  1892,  gold  for  export 
from  the  United  States  had  been  provided  by  drawing 
through  the  New  York  Clearing-House  upon  the  gold 
reserves  of  the  associated  banks  of  that  city.  But,  as  al- 
ready seen,*  this  situation  had  been  changed  through  the 
operation  of  the  Silver  Law  of  1890  in  causing  balances  to 
be  settled  at  the  New  York  Clearing-House  in  legal-tender 
notes.  Subsequent  to  June,  1892,  the  check  which  a  ster- 
ling banker  received  for  his  bill  of  exchange  in  London, 
after  passing  through  the  Clearing-House,  was  met  in 
legal-tender  notes.  These  notes  could  not  be  used  in  New 
York  by  the  sterling  bankers  to  pay  their  drafts  on  Lon- 
don, and  the  banks  with  which  they  carried  deposits  were 
unable  to  provide  the  necessary  gold  out  of  their  own 
reserves.  As  a  consequence,  there  were  only  two  ways 
available  to  secure  gold.  In  the  first  place,  the  necessary 
amount  might  be  secured  by  offering  a  premium.  Such 
action,  however,  would  have  constituted  an  assault  upon 
the  public  credit,  and  an  open  acknowledgment  of  the 
depreciation  of  the  currency  of  the  country.  On  the  other 
hand,  greenbacks  or  Treasury  notes  might  be  carried  to 
the  Treasury  and  gold  secured  through  their  redemption. 
It  was  for  this  purpose  —  to  protect  the  currency  of  the 
country  from  depreciation  —  that  the  Treasury  gold 
reserve  had  been  provided.  Bankers,  therefore,  who 
needed  gold  for  export,  brought  greenbacks  to  the  Treas- 
ury to  be  redeemed. 

During  the  previous  history  of  the  Treasury  but  a  very 
small  amount  of  legal-tender  notes  had  been  thus  pre- 
sented for  redemption.  The  amount  redeemed  during 
the  thirteen  years  1879-91  had  been  only  $34,000,000.2 
But  the  expedient  of  withdrawing  small  greenbacks  and 
substituting  greenbacks  of  large  denomination  adopted 
by  the  Treasury  officials  in  1886,  in  order  to  make  room 

1  See  p.  88. 

^  Report  of  the  Secretary  of  the  Treasury  (Finance),  1893,  p.  13. 


92         THE  CAUSES  OF  THE  PANIC   OF   1893 

for  silver  certificates  in  the  circulation,  had  resulted,  as 
already  pointed  out,^  in  placing  the  greenbacks  of  large 
denomination  in  the  reserves  of  the  banks,  where  they 
were  readily  available  to  draw  gold  from  the  Treasury, 
in  the  event  of  an  emergency  such  as  confronted  the  coun- 
try during  1892.  The  Treasury  notes  of  1890  were  also 
redeemable  in  gold,  and,  having  through  the  redundancy 
of  the  currency  accumulated  in  the  bank  reserves,  might 
be  quickly  used  in  making  demands  on  the  Treasury. 
With  the  means  thus  at  hand,  rapid  inroads  were  made 
upon  the  Treasury's  stock  of  gold.  The  heavy  exports  of 
gold  from  the  country  during  the  latter  half  of  1892  and 
the  early  part  of  1893  were  almost  wholly  drawn  from  the 
Treasury  by  the  presentment  of  Treasury  notes  and  green- 
backs. The  amount  of  notes  redeemed  during  the  three 
fiscal  years  1891-93,  and  the  connection  between  the  re- 
demption of  legal-tender  notes  and  the  flow  of  gold  from 
the  country,  is  shown  in  the  following  table : 

REDEMPTION  OF  GREENBACKS  AND  TREASURY  NOTES  AND 
EXPORTS  OF  GOLD,  1891-93. 


Fiscal 
Year. 

Greenbacks 
redeemed. 

Treasury  Notes 
redeemed. 

Total 
Redemptions. 

Exports  of 
Gold. 

1891  .... 

1892  .... 

1893  .... 

$5,986,070 

5,352,243 

55,319,125 

$3,773,600 
46,781,220 

$5,986,070 

9,125,843 

102,100,345 

$86,362,654 

50,195,327 

108,680,844 

This  drain  upon  the  Treasury  gold  reserve  through  the 
redemption  of  greenbacks  and  Treasury  notes  brought 
the  existing  apprehension  as  to  the  maintenance  of  gold 
payments  to  a  disastrous  climax.  It  has  already  been 
shown  how  the  silver  law  of  1890  brought  about  a  re- 
dundancy of  the  currency,  and  an  accumulation  of  legal 
tenders  in  the  New  York  banks  as  early  as  1891.  As  a 
»  See  p.  23. 


CONDITIONS   IN   UNITED    STATES  — 1891-93 


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94  THE  CAUSES  OF  THE  PANIC  OF  1893 

result  of  this  accumulation  of  legal-tender  notes,  as  also 
pointed  out,  a  constantly  increasing  percentage  of  the 
customs  revenues,  after  the  marketing  of  the  grain  crop 
of  1891,  was  received  in  greenbacks  and  Treasury  notes. 
The  inflow  of  gold  to  replenish  the  Treasury  surplus  was 
thus  greatly  curtailed.  At  the  same  time  it  was  found  that 
the  outflow  of  gold  from  the  Treasury  was  rapidly  in- 
creased by  the  extravagant  appropriations  of  the  Fiftieth 
and  Fifty-first  Congresses.^  To  this  alarming  situation 
was  now  added  the  drain  upon  the  gold  reserves  caused 
by  the  direct  redemption  of  Treasury  notes  and  green- 
backs. The  Treasury  gold  reserve  in  short  was  being  dis- 
sipated by  Government  expenditures  and  the  redemption 
of  legal-tender  notes,  while  additional  supplies  of  gold 
were  being  cut  off  through  the  displacement  of  gold  in 
the  customs  receipts  by  the  greenbacks  and  silver  currency. 
As  early  as  June,  1892,  as  will  be  seen  in  the  accompany- 
ing chart,  the  Treasury  gold  reserve  had  been  reduced 
to  $114,231,883.  In  his  report  to  Congress  for  that  year 
Secretary  Foster  declared  that  the  redemption  machinery 
of  the  Government  was  in  peril. ^  After  this  date  the  grow- 
ing redundancy  in  the  silver  circulation  caused  by  the 
automatic  issue  of  $50,000,000  Treasury  notes  annually 
was  attended  by  increased  hoarding  of  gold  by  the  banks, 
heavier  exports  of  gold  from  the  country,  and  the  present- 
ment of  a  larger  amount  of  legal-tender  paper  at  the  Treas- 
ury for  redemption.  Under  these  influences,  the  gold 
reserve  was  mq,intained  with  increasing  difficulty  and  the 
alarm  over  the  Treasury  situation  became  more  pro- 
nounced and  widespread.  By  the  close  of  January,  1893, 
the  gold  reserve  had  declined  to  $108,181,713,  a  bare  eight 
million  dollars  more  than  the  danger  minimum  of  $100,- 
000,000.^     Conditions  had  reached  such  a  critical  stage 

^  Reporf  of  the  Secretary  of  the  Treasury  (Finance),  1893,  p.  cxxviii. 
^  Ibid.,  p.  xxix. 
3  Ibid.,  p.  75. 


CONDITIONS  IN  UNITED    STATES  — 1891-93     95 

early  in  February  that  Secretary  Foster  gave  orders  to  the 
Bureau  of  Printing  and  Engraving  to  prepare  plates  for 
a  bond  issue  under  the  provisions  of  the  Resumption  Act. 
About  six  or  eight  million  dollars  in  gold,  however,  was 
obtained  early  in  February  from  the  New  York  banks 
in  return  for  legal-tender  notes,  and  with  this  assistance 
the  Treasury  was  kept  afloat  until  the  finances  of  the  Gov- 
ernment could  be  turned  over  to  the  incoming  Cleveland 
Administration. 

When  Secretary  Foster  turned  over  the  control  of  the 
Treasury  to  the  Democratic  Administration,  the  gold  re- 
serve was  only  $100,982,410,  and  the  total  of  all  other 
kinds  of  money  in  the  Treasury  was  scarcely  $25,000,000.^ 
By  April  15,  Secretary  Carlisle  was  forced  to  issue  an  order 
to  suspend  the  further  issue  of  gold  certificates  for  gold 
deposited  in  the  Treasury  as  required  in  the  Act  of  July 
12,  1882,  which  stated  that  no  more  gold  certificates  should 
be  issued  when  the  gold  in  the  Treasury  "reserved  for 
the  redemption  of  United  States  notes  falls  below  $100,- 
000,000."  On  April  22,  the  gold  reserve  actually  fell  below 
the  $100,000,000  limit.  Several  days  before  this  occurrence, 
the  feverish  condition  of  the  money  market  and  the  anxiety 
over  the  currency  situation  were  intensified  by  a  rumor 
that  Secretary  Carlisle  intended  to  abandon  the  policy 
of  redeeming  Treasury  notes  in  gold.  The  Silver  Law  of 
1890,  as  already  cited,  authorized  the  Secretary  to  "re- 
deem such  notes  in  gold  or  silver  coins  at  his  discretion." 
Since  the  gold  reserve  had  declined  to  the  statutory  mini- 
mum, it  was  argued  that  Secretary  Carlisle  would  tender 
only  silver  coins  for  these  notes  and  thus  place  the  coun- 
try upon  a  basis  of  silver  payments.  Secretary  Carlisle, 
on  April  20,  announced  that  he  would  pay  gold  for  Treas- 
ury notes  so  long  as  he  had  "gold  lawfully  available  for 
that  purpose."  This  reply  still  left  the  matter  in  doubt. 
Consequently  it  added  to  the  existing  alarm  and  caused 
^  Report  of  the  Secretary  of  the  Treasury  (Finance),  1893,  p.  75. 


96         THE  CAUSES  OF  THE  PANIC   OF   1893 

an  increase  in  the  gold  exports  from  the  country.*  Two 
days  later,  however,  President  Cleveland  publicly  declared 
that  both  the  "President  and  his  Cabinet  are  absolutely 
harmonious  in  the  determination  to  exercise  every  power 
conferred  upon  them  to  maintain  the  public  credit,  to 
keep  the  public  faith,  and  to  preserve  the  parity  between 
gold  and  silver  and  between  all  financial  obligations  of 
the  Government."  But  the  uneasiness  of  the  country, 
which  had  been  constantly  increased  by  the  undermining 
of  the  Treasury,  refused  to  be  allayed.  On  the  contrary, 
it  soon  developed  into  a  panic  which  was  followed  by  wide- 
spread disaster. 

^  The  exports  of  gold  from  New  York  and  Boston  during  this  week 
amounted  to  $8,000,000. 


CHAPTER   VII 

THE   CRISIS   OF    1893 


The  Collapse  on  the  New  York  Stock  Market.  —  Depression  of  Stock  Values. 
—  Run  of  Depositors  upon  Interior  Banks.  —  Withdrawal  of  Banking 
Deposits  from  Eastern  Reserve  Centres,  and  the  Resultant  Deficiency  in 
New  York  Bank  Reserves.  —  The  Stringency  in  the  Money  Market.  —  De- 
velopment of  a  Money  Famine.  —  Issue  of  Clearing-House  Certificates.  — 
Mercantile  and  Industrial  Failures.  —  Bank  Suspensions  and  Failures. — 
Repeal  of  the  Silver  Purchase  Clause  of  the  Sherman  Law  and  the  Return 
of  Confidence. 

The  first  evidence  of  the  culmination  of  the  long-felt 
uncertainty  as  to  the  maintenance  of  gold  payments  came 
in  the  shape  of  a  collapse  on  the  New  York  Stock  Ex- 
change. The  same  reasons  which  had  led  British  and 
European  investors  to  distrust  the  currency  situation  in 
the  United  States  had  already  affected  Americans.  The 
amount  of  new  commitments  of  capital  by  American  in- 
vestors had  been  steadily  decreasing  since  the  passage  of 
the  Sherman  Law.^  After  the  beginning  of  the  year  1893 
this  tendency  assumed  an  aggravated  form,  manifesting 
itself  not  only  in  a  lessened  activity  in  new  undertakings, 
but  also  in  an  endeavor  to  withdraw  from  old  enterprises. 
During  the  first  five  months  of  1893,  when  the  condi- 
tion of  the  Treasury  grew  worse  week  by  week,  and  the 
change  from  a  gold  to  a  silver  basis  of  payments  became 
more  and  more  probable,  investors  became  exceedingly 
anxious  to  dispose  of  their  holdings  of  securities  before 
the  critical  moment  arrived.  In  the  very  nature  of  things 
they  desired  to  realize  on  their  investments  before  the  gold 
standard  of  payments  was  abandoned.  As  this  distrust 
of  the  currency  developed  and  the  efforts  to  realize  were 
»  See  p.  106. 


98          THE  CAUSES  OF  THE  PANIC   OF   1893 

stimulated,  there  was  a  steady  fall  in  stock  quotations. 
The  climax  was  reached  immediately  after  the  decline,  on 
April  22,  1893,  of  the  gold  reserve  below  the  danger-limit 
of  $100,000,000.  After  that  date  the  attempt  on  the  part 
of  investors  to  liquidate  in  the  face  of  the  general  dis- 
trust of  the  Treasury  situation  was  followed  during  the 
first  week  of  May  by  a  panic  and  a  sharp  fall  in  values  on 
the  New  York  Stock  Exchange.^  The  rush  of  investors 
to  sell  their  holdings  affected  adversely  all  classes  of  se- 
curities. Several  brokerage  firms  were  unable  to  protect 
themselves  and  were  forced  to  suspend  payments.  The 
extent  of  the  panic  was  also  increased  by  the  discovery 
that  the  stock  speculation  which  had  prevailed  during  the 
early  months  of  the  year  had  been  stimulated  by  many 
questionable  financial  practices.^  The  depression  in  stock 
values  which  began  under  these  conditions  was  increased 
by  further  developments  in  the  currency  situation,  and  in 
most  cases  continued  until  the  end  of  the  year.  The  extent 
of  the  decline  in  prices  is  apparent  from  the  accompany- 
ing table  (page  99),  showing  the  opening,  closing,  and 
lowest  quotations  during  1893  of  a  few  leading  stocks  at 
the  New  York  Stock  Exchange.^ 

This  breakdown  on  the  stock  market  was  the  begin- 
ning of  widespread  financial  disaster.  As  a  matter  of  fact 
it  furnished  an  occasion  for  the  outbreak  of  the  general 
distrust  of  the  currency  situation  which  had  been  gaining 
strength  since  the  beginning  of  the  yeari  The  discredit 
of  the  currency,  or  the  fear  as  to  the  fixity  of  the  gold  stand- 
ard of  payments,  assumed  outwardly  the  shape  of  a  loss 
of  confidence  in  banks  and  financial  institutions.  Bark 
depositors  realized  that  in  the  event  of  the  general  liqui- 

*  Annual  Supplement  to  The  Commercial  and  Financial  Chronicle, 
1894,  Financial  Review  of  1893,  pp.  8,  9. 

^  This  was  especially  true  in  the  case  of  the  National  Cordage  Com- 
pany, the  stock  of  which  had  been  foisted  upon  the  public  through  the 
manipulation  of  dividends  by  its  directors. 

^  Annual  Supplement  to  The  Commercial  and  Financial  Chronicle, 
1894,  Financial  Review  of  1893,  p.  7. 


THE  CRISIS  OF   1893  99 

RANGE   OF   LEADING    STOCKS   IN    1893. 


Opening. 


Lowest. 


Closing. 


Railroads. 

Baltimore  and  Ohio 

New  York  Central  and  Hudson 

Pennsylvania 

Atchison,  Top.  and  Santa  Fe ..  . 

Chicago,  Mil.  and  St.  Paul 

Illinois  Central 

Northern  Pacific  (pref.) 

Union  Pacific 

Chesapeake  and  Ohio 

Louisville  and  Nashville 

Miscellaneous. 

American  Sugar 

American  Tobacco  Co 

National  Cordage 

Pacific  Mail  Steamship 

United  States  Rubber  Co 

Western  Union  Telegraph  Co.  . . 


94 

109 

54 

34 

77 
99 
47 
39 

22 

72 

111 
121 
138 

27 
46 
96 


54  July  27 
92  July  26 
46  Dec.  18 
9  Dec.  30 
46  July  26 
86  July  18 
15  Aug.  16 
15  July  26 
12  July  26 
39  Dec.  28 

61  July  26 
43  July  31 

7  Aug.  25 

8  July  27 
17  Aug.  17 
67  July  26 


67 
98 
48 
10 
56 
89 
18 
18 
16 
44 

81 
70 

20 
14 

42 
82 


dation  of  credit  obligations  which  had  been  presaged  by 
the  panic  in  the  stock  market,  financial  institutions  would 
not  be  in  a  position  quickly  to  convert  their  assets  into 
gold,  and,  on  account  of  their  small  gold  reserves,  would 
be  unable  to  pay  their  obligations  in  gold.  This  feeling, 
which  was  strong  in  the  interior  of  the  country  and  espe- 
cially prevalent  over  a  wide  section  of  the  West  and  South, 
finally  during  the  months  of  May  and  June  led  to  a  run 
upon  many  Western  banks.  Moreover,  the  Government 
and  the  banks  were  already  hoarding  gold,  and  it  was  but 
a  short  step  to  the  hoarding  of  gold  and  specie  by  indi- 
viduals who  feared  that  the  country  would  be  reduced  to 
a  depreciated  silver  currency  as  a  basis  of  payments.  This 
apprehension  not  only  caused  the  hoarding  of  gold  by 
individuals,  but  also  led  depositors  in  their  rush  upon 
interior  banks  to  demand  specie  in  payment  of  their 
accounts. 

Under  the  provisions  of  the  National  Banking  Law, 
banks  in  the  interior  of  the  country  are  required  to  main- 


100        THE   CAUSES   OF  THE  PANIC   OF   1893 

tain  a  cash  reserve  equal  to  fifteen  per  cent,  of  their  de- 
posits. Only  two  fifths  of  this  reserve,  however,  must 
necessarily  be  held  in  the  vaults  of  the  interior  banks. 
The  remaining  three  fifths  may  be  kept  on  deposit  at 
reserve  banks  in  certain  designated  cities.  Since  the  de- 
mand for  loans  was  usually  light  in  Western  sections  of 
the  country,  except  in  the  harvest  season,  the  bulk  of  the 
country's  bank  reserves  had  come  to  be  held  by  certain 
Eastern  reserve  agents  which  usually  paid  two  per  cent, 
interest  for  the  use  of  the  funds.  This  was  especially  true 
during  the  years  subsequent  to  1890.  Mention  has  already 
been  made  of  the  flow  of  legal-tender  notes  from  the  West 
to  the  East  after  the  harvest  of  1891,  and  of  theh"  accumu- 
lation in  the  banks  of  New  York.  This  movement  was 
symptomatic  of  the  general  tendency  of  idle  Western  funds 
to  move  toward  the  East.  During  the  two  fiscal  years  1891 
and  1892  the  deposit  by  Western  banks  of  reserve  funds 
in  the  East  increased  one  third.  During  the  same  period 
Western  deposits  in  New  York  City  were  doubled.  At  the 
close  of  the  year  1892  the  deposits  of  interior  banks  in 
Eastern  centres  amounted  to  $204,000,000. ^  All  of  this 
immense  amount  was  payable  on  demand.  When  the 
run  of  depositors  upon  Western  and  other  interior  banks 
began  in  May,  these  institutions,  therefore,  in  order  to 
meet  the  pressing  demands  for  cash,  at  once  recalled  their 
reserves  and  other  funds  which  they  had  on  deposit  in  the 
East. 

The  effect  of  this  action  upon  the  New  York  bank  de- 
posits and  reserves  at  once  became  evident.  During  the 
month  of  June  about  $33,000,000  of  deposits  were  with- 
drawn from  the  Clearing-House  banks.  The  withdrawal 
of  cash  to  the  interior  steadily  continued  during  the  next 
two  months.  The  deposits  of  the  Clearing-House  banks, 
which  were  $431,000,000  in  round  numbers  on  June  3, 

*  Noyes's  Thirty  Years  of  American  Finance,  p.  190.  Report  of  the 
Secretary  of  the  Treasury,  1893  (Finance),  pp.  431,  433. 


THE  CRISIS  OF   1893 


101 


had  been  reduced  by  August  29  to  $370,000,000.  As  a 
consequence  of  this  strain,  the  reserves  of  the  New  York 
Associated  Banks  fell  below  the  statutory  minimum  of 
twenty-five  per  cent,  on  July  8,  and  the  deficiency  thus 
begun  continued  until  September  9.  The  greatest  deficit 
was  one  of  $16,545,375  on  August  12.  The  movement 
of  funds  to  the  interior  of  the  country,  and  the  resultant 
decrease  in  the  reserves  and  deposits  of  New  York  banks 
from  June  to  September,  may  be  readily  seen  from  the 
following  figures  showing  the  deposits,  reserves,  and  ratio 
of  reserves  to  deposits  of  the  New  York  Clearing-House 
banks : ^ 


NEW    YORK    CLEARING    HOUSE    BANKS.       DEPOSITS,    RESERVES 
AND  RATIO  OF  RESERVES  TO  DEPOSITS,  JUNE-SEPT.,  1893. 

(OOO's  omitted.) 


Week 
ended 

Deposits. 

Specie. 

Legal 
Tenders. 

Reserves  to 
Deposits. 
Per  Cent. 

Surplus  Reserve. 

June    3 . . 

$431,411 

$70,156 

$58,683 

29.8 

$20,987 

10  .. 

418,925 

69,529 

46,623 

28.4 

14,420 

17  .. 

406,536 

68,218 

42,192 

27.1 

8,776 

24  .. 

398,064 

65,923 

39,074 

26.3 

5,481 

July     1  . . 

397,979 

62,988 

37,758 

25.3 

1,251 

8].. 

398,679 

61,703 

32,884 

23.7 

5,082  deficit 

15.. 

394,174 

62,268 

32,005 

23.9 

4,269  deficit 

22  .. 

390,476 

63,853 

32,509 

24.6 

1,256  deficit 

29.. 

382,177 

62,631 

28,610 

23.8 

4,301  deficit 

Aug.     5  . . 

372,640 

55,884 

23,265 

21.2 

14,017  deficit 

12.. 

372,203 

53,624 

22,880 

20.5 

16,545  deficit 

19  .. 

370,302 

58,352 

22,177 

21.7 

12,045  deficit 

26  .. 

370,479 

62,930 

22,951 

23.1 

6,736  deficit 

Sept.    2.. 

374,010 

66,960 

25,074 

24.5 

1,567  deficit 

The  rapid  withdrawal  of  specie  and  currency  from  New 
York,  as  shown  above,  and  from  other  Eastern  money 
centres,  by  banks  in  the  West  and  South,  was  of  course 
followed  by  a  large  diminution  of  the  money  supply  of 
New  York  and  other  Eastern  cities.    The  existing  supply 


*  Annual  Supplement,  The  Commercial  and  Financial  Chronicle,  p.  23, 
Financial  Review,  1894. 


102        THE   CAUSES  OF  THE  PANIC   OF   1893 

was  further  depleted  by  the  general  withdrawal  of  savings 
and  deposits  from  financial  institutions,  on  account  of  the 
fear  that  silver  and  notes  redeemable  in  silver  would  fall 
much  below  gold  values.  At  the  same  time  the  curtail- 
ment of  bank  loans,  the  general  rush  to  liquidate  all  forms 
of  obligations,  and  the  necessity  for  funds  to  provide  new 
margins  for  holdings  of  securities,  created  an  unusual  and 
intense  demand  for  legal  money  of  all  kinds.  There  was, 
in  short,  a  remarkable  shrinkage  in  the  Eastern  money 
supply  in  the  face  of  an  intense  demand  for  money,  and 
the  logical  result  of  the  situation  was  an  extraordinary 
increase  in  the  rates  on  call  loans  and  commercial  paper. 
During  the  latter  part  of  June  the  rates  for  call  loans  in 
New  York  ranged  as  high  as  seventy-four  per  cent.  On 
July  28  the  rate  was  seventy- two  per  cent.,  and  on  August 
4  fifty-one  per  cent,  was  demanded.  During  these  same 
months  the  rates  on  first-class  commercial  paper  ranged 
from  eight  to  twelve  per  cent.  These  high  quotations  were 
practically  nominal,  however,  for  the  reason  that  only  a 
very  small  amount  of  funds  could  be  secured  even  at  these 
unusual  rates  of  interest.  The  extraordinary  stringency 
in  the  New  York  money  market  from  the  close  of  June 
to  the  beginning  of  September  is  at  once  apparent  from 
a  glance  at  the  accompanying  table,  on  the  next  page, 
which  shows  the  weekly  quotations  for  call  loans  and 
commercial  paper  during  this  period.^ 

On  account  of  the  constantly  growing  demand  for  money 
from  far  and  near,  the  hoarding  of  money  by  individuals, 
and  the  universal  desire  to  convert  goods,  securities,  and 
all  descriptions  of  obligations  into  gold  because  of  the  fear 
of  a  reversion  to  a  silver  standard  of  payments,  the  tight- 
ness in  the  money  market  finally  developed  into  a  money- 
famine.  Time-loans  were  scarcely  obtainable.  Many  city 
banks  adopted  the  extreme  measure  of  refusing  to  cash 

*  Annual  Supplement,  The  Commercial  and  Financial  Chronicle,  p.  35, 
Financial  Review,  1894. 


THE   CRISIS  OF   1893 


103 


RATES  FOR  CALL  LOANS  AND  COMMERCIAL  PAPER  AT  NEW  YORK 
JUNE-SEPTEMBER,  1893. 


Week  ending  Friday, 


June     2 

9 

16 

23 

30 

July  7 
14 
21 
28 

Aug.  4 
11 
18 
25 

Sept.     1 


Call  Loans. 


2  to    5 

2  to  12 

4  to  25 

to  25 

to  74 

to  25 

to  20 

to  11 

2  to  72 

2  to  51 

2  to    6 

2  to    6 

3  to    7 
2  to    6 


Prime  Paper. 


6  to    9 

6  to  7 
6|  to    8 

7  to  15 

8  to  12 
8  to  12 
8  to  12 
8  to  12 
8  to  12 
8  to  12 
8  to  12 
0  to  12 
0  to  15 
2  to  18 


the  checks  of  their  own  depositors,  except  in  cases  where 
it  could  be  shown  that  the  money  was  absolutely  necessary 
for  personal  and  business  uses.  Finally,  during  the  early 
part  of  August,  a  premium  was  offered  for  gold,  silver, 
notes,  or  currency  of  any  kind,  and  various  kinds  of  media 
of  exchange  were  devised  and  used  by  business  and  in- 
dustrial concerns  in  the  payment  of  wages  and  other  trans- 
actions.^ Despite  these  expedients,  however,  the  premium 
on  money  lasted  throughout  the  month  of  August,  varying 
from  one  to  five  per  cent,  without  regard  to  the  kind  of 
money  obtained.  Under  the  pressure  to  get  anything  with 
which  to  settle  the  next  day's  obligation,  gold,  silver,  and 
paper  were  all  eagerly  accepted  and  rose  to  the  same 
premium.^ 

In  addition  to  the  device  of  offering  a  premium  for 
money,  three  other  plans  were  adopted  for  relieving  the 
currency  famine.     In  the  first  place,  national  banks  de- 

^  "The  Currency  Famine  of  1893,"  John  De  Witt  Warner,  Sound 
Currency,  vol.  ii,  no.  6  (February  15,  1895),  p.  339. 

^  This  was  a  curious  pliase  of  a  money  stringency  which  had  been 
caused  by  the  distrust  of  a  silver  currency,  but,  as  a  matter  of  fact,  it 
was  only  an  incident  of  the  existing  situation  and  showed  no  confidence 
in  silver. 


104        THE   CAUSES  OF  THE  PANIC   OF  1893 

posited  United  States  bonds  with  the  Comptroller  of  the 
Currency,  and  thus  increased  their  note  circulation.  In 
the  second  place,  Clearing-House  certificates  were  issued  in 
large  amounts.  Finally,  Clearing-House  certificates  were 
used  by  a  combination  of  New  York  bankers  as  a  credit 
to  facilitate  the  importation  of  gold  from  abroad.  From 
these  three  sources  the  amount  of  available  currency 
during  the  two  months  of  July  and  August  was  increased 
to  the  extent  of  $128,831,276,  divided  as  follows:  ^ 

Clearing-House  certificates,  in  four  Atlantic  cities  ^  . .  . .      $62,165,000 

Imports  of  gold  into  the  United  States 46,398,930 

Increase  in  national  bank  circulation    20,267,346 

Total  increase  in  two  months $128,831,276 

Clearing-House  certificates  were  first  issued  freely  in 
New  York  City  on  June  21,  in  an  attempt  to  break  down 
the  extraordinary  rates  for  loans.  Similar  issues  had 
already  been  made  in  Philadelphia  as  early  as  June  16, 
and  during  the  latter  part  of  August  and  the  beginning 
of  September,  Boston,  Baltimore,  and  Pittsburg  followed 
suit.  The  extent  of  the  movement  and  the  amount  of 
loan  certificates  issued  in  the  cities  named  are  indicated 
in  the  following  table :  ^ 


City. 

Date  of  Issue  of 
First  Certificate. 

Date  of  Largest  Amount 
Outstanding. 

Largest 

Amount 

Outstanding. 

New  York .... 
Philadelphia  . . 

Boston 

Baltimore 

Pittsburg 

June  21 
June  16 
June  27 
June  27 
Aug.  11 

Aug.  29  to  Sept.  6 
Aug.  15 

Aug.  23  to  Sept.  1 
Aug.  24  to  Sept.  9 
Sept.  15 

$38,280,000 

10,965,000 

11,445,000 

1,475,000 

987,000 

Total $63,152,000 


'  Annual  Supplement,  The  Commercial  and  Financial  Chronicle,  p.  31, 
Financial  Review,  1894. 

2  This  total  does  not  include  the  $987,000  in  loan  certificates  issued 
by  the  Pittsburg  banks  as  shown  in  a  subsequent  table. 

'  Treasury  Report,  1893,  p.  358. 

The  issue  of  Clearing-House  certificates  greatly  exceeded  that  of  pre- 
vious years.    In  1873  the  New  York  Clearing-House  Association  issued 


THE  CRISIS  OF   1893 


105 


These  efiforts  on  the  part  of  the  banks  to  provide  cur- 
rency and  other  means  of  payments  tended  to  mitigate 
the  severity  of  the  crisis  and  to  assist  many  business  and 
industrial  concerns  which  were  in  dire  straits.  They  were 
not  powerful  enough,  however,  to  prevent  extensive 
financial  and  industrial  losses. 

The  depression  in  stock  values  has  already  been  re- 
viewed.* On  the  other  hand  the  mercantile  and  indus- 
trial failures  throughout  the  year  were  phenomenal. 
The  aggregate  liabilities  of  mercantile  and  industrial 
establishments  which  failed  in  1893  were  three  times  as 
great  as  the  liabilities  embraced  in  the  failures  of  1891, 
and  almost  twice  as  great  as  those  of  the  panic  year 
1890.  The  total  number  of  failures  during  1893,  and  the 
liabilities  involved,  exclusive  of  railroads  and  banks,  is 
given  below. ^  For  purposes  of  comparison  the  returns 
for  1892  are  also  added: 


MERCANTILE  AND   INDUSTRIAL   FAILURES,   1892-93. 


• 

First 
Quarter. 

Second 
Quarter. 

Third 
Quarter. 

Fourth 
Quarter. 

Total. 

1893. 

Number  .  .  . 
Liabilities. . 
1892. 

Number  . .  . 
Liabilities.. 

3,202 
47,338,300 

3,-384 
39,284,349 

3,199 
121,582,539 

2,119 
22,989,331 

4,015 
82,470,040 

1,984 
18,659,235 

4,826 
95,389,010 

2,857 
33,111,252 

15,242 
346,779,889 

10.344 
114,044,167 

An  examination  of  these  figures  reveals  two  interesting 
facts  relative  to  the  disastrous  conditions  which  prevailed 
during  1893.  In  the  first  place  they  show  that  the  mer- 
cantile and  industrial  failures  began  to  increase  before 
1893.    The  reason  for  this  is  plain.    The  distrust  in  for- 

only  $26,565,000,  and  the  Philadelphia  Clearing-House  $6,785,000.  In 
1890,  as  already  seen,  the  total  issue  of  Clearing-House  certificates  by 
New  York,  Philadelphia,  and  Boston  banks  was  $29,140,000. 

>  See  p.  99. 

^  Compiled  from  the  Annual  Supplement,  The  Commercial  and  Finan- 
cial Chronicle,  p.  17,  Financial  Review,  1894. 


106       THE   CAUSES   OF  THE   PANIC   OF   1893 

eign  countries  as  to  the  American  currency  situation,  as 
already  seen,  had  led  to  the  withdrawal  of  foreign  capital 
invested  in  this  country.  At  the  same  time  further  com- 
mitments of  capital  were  refused.  Moreover,  the  distrust 
in  the  ability  of  the  Treasury  to  maintain  gold  payments 
soon  affected  Americans  as  well  as  foreigners,  and  made 
them  exceedingly  cautious  in  entering  into  new  inter- 
prises.^  The  result  was  that  industrial  and  trade  activity 
were  curtailed  on  every  side.  Prices  also  declined  and  the 
margin  of  profits  gradually  grew  smaller.  Under  these 
conditions,  the  weaker  industrial  and  mercantile  con- 
cerns experienced  difficulty  in  maintaining  their  solvency, 
and  as  a  consequence  the  amount  of  failures  during  the 
last  quarter  of  1892  and  the  first  quarter  of  1893  showed 
a  decided  increase.  With  the  growth  of  distrust  of  the 
currency  situation  and  the  resultant  stringency  in  the 
money  market  dyring  the  spring  and  summer  of  1893,  the 
difficulty  of  conducting  business  was  intensified,  and  only 
the  strongest  corporations  and  mercantile  houses  were 
able  to  continue  operations.  As  it  was,  many  of  these  were 
forced  to  suspend,  and  the  smaller  establishments  which 
had  been  already  weakened  by  the  depressed  conditions 
prevailing  during  the  previous  year  were  forced  to  close 
their  doors. ^ 

To  these  widespread  mercantile  and  industrial  failures 
during  1893  there  was  also  added  the  collapse  of  a  number 
of  great  railway  corporations,  such  as  the  Reading,  the 
Northern  t^aciiic,  the  Union  Pacific,  the  Atchison,  Topeka 
and^ante  te,  the  Erie,  and  the  New  York  and  New  Eng- 
land- The  most  prominent  feature  of  the  crisis  during  the 
summer  of  1893,  however,  as  well  as  the  most  distinctive 

*  This  tendency  was  clearly  apparent  in  the  decline  of  new  listings 
of  stocks  and  bonds  on  the  New  York  Stock  Exchange.  New  issues  of 
stocks  and  bonds  were  $23,000,000  less,  in  round  numbers,  in  1892  than 
in  1891,  and  the  listings  for  1893  were  $42,000,000  below  the  reduced 
level  for  1892.  Annual  Supplement,  The  Commercial  and  Financial 
Chronicle  p.  13,  Financial  Review,  1893. 

2  Ibid.,  1894,  pp.  16-18,  Crisis  of  1893  and  the  Year's  Failures. 


THE    CRISIS    OF    1893 


107 


and  exceptional,  was  the  numerous  bank  failures  and 
suspensions.  During  the  five  years  preceding  189^5  there 
'had  been  an  annual  average  of  about  twelve  national  bank 
failures.  About  forty-four  banks  each  year  also  had  gone 
into  voluntary  liquidation.  In  comparison  with  these 
figures,  158  national  banks  suspended,  and  46  went  into 
voluntary  liquidation,  during  the  first  nine  months  of  1893. 
Of  the  national  banks  which  suspended,  three  were  located 
in  the  IViiddle  States,  38  in  the  South,  49  in  the  West, 
and  66  in  the  Pacific  States  and  territories.*  Private 
banks  and  financial  institutions  also  came  in  for  a  propor- 
tional share  of  disaster.  The  entire  number  and  classes  of 
banks  and  financial  establishments  which  suspended  and 
those  which  resumed,  from  January  1  to  September  1, 
1893,  together  with  their  assets  and  liabilities,  is  shown  in 
the  following  table,  compiled  by  the  Comptroller  of  the 
Currency :  ^ 

BANKS,  ETC.,  WHICH   SUSPENDED.   JAN.    1   TO   SEPT.   1,   1893. 


Class. 

Number. 

Assets. 

Liabilities. 

State  Banks 

172 

47 

13 

6 

177 

$41,281,848 

17,673,938 

14,337,500 

760,803 

20,237,259 

$36,903,266 

Savings  Banks 

16,830,809 

Loan  and  Trust  Companies  .  . 

Mortgage  Companies 

Private  Banks 

22,354,000 

1,790,000 

19,315,455 

415 

94,291,348 

97,193,530 

The  financial  and  industrial  chaos  which  was  produced 
by  these  unprecedented  bank  failures  reigned  throughout 

^  Treasury  Report,  1893  {Report  of  Comptroller  Eclrls),  pp.  347-349. 

The  number  of  suspensions  in  the  South  and  West  was  especially 
great  for  the  reason  that  the  banks  in  those  sections  of  the  country  had 
extended  their  loans  during  the  year  1892.  When  the  run  of  depositors, 
as  already  described,  upon  these  institutions  was  started  in  J>ine,  the 
banks  were  not  able  to  convert  their  assets  into  a  liquid  form  and  in  many 
cases  the  demands  of  depositors  were  so  pressing  that  the  banks  were 
compelled  to  close  their  doors  at  a  time  when  their  reserve  deposits  were 
already  on  the  way  to  them,  having  been  sliipped  from  Eastern  centres. 

2  Treasury  Report,  1893  {Report  of  Comptroller  Eckels),  p.  351. 


108       THE   CAUSES  OF  THE  PANIC   OF   1893 

the  summer  of  1893.  The  turning-point  came  during  the 
latter  part  of  August.  On  the  30th  of  June  PresiHent 
Cleveland  issued  a  call  for  Congress  to  meet  in  extraordin- 
ary session  on  the  Vth  ot  August.  Shortly  after  the  con- 
vening  of  Congress  a  bill  repealing  the  silver  purchase 
clause  of  the  law  of  1 890  was  introduced  in  the  House,  and 
after  a  sharp  debate  was  passed,  on  August  28,  by  a  major- 
ity of  131  votes.  Although  the  Senate  delayed  action  until 
October  30,  when  it  finally  passed  the  measure,  the  unex- 
pected vote  of  the  House  restored  confidence  in  the  coun- 
try's financial  integrity,  and  marked  the  close  of  the  most 
acute  period  of  the  crisis.  Contemporary  evidence  of  this 
fact  was  furnished  by  an  authoritative  financial  journal 
which  made  the  following  significant  comment  on  the  situa- 
tion :  ^ 

"This  [the  vote  of  the  House]  was  the  turning-point  of  the 
whole  financial  crisis  of  1893;  confidence  was  restored  like 
magic;  money  began  to  come  back  into  the  banks  and  kept  on 
accumulating,  until  on  December  30  the  surplus  reserve  of  the 
New  York  banks  reached  $80,115,150;  the  Clearing-House 
certificates  were  drawn  in  gradually,  and  by  November  1  all 
were  canceled.  After  the  decisive  vote  in  the  popular  branch 
of  the  National  Legislature  the  country  never  lost  confidence, 
and  ultimate  repeal  was  considered  certain  notwithstanding 
the  desperate  opposition  in  the  Senate." 

After  the  first  week  in  September  the  money  market 
relaxed  until  funds  were  loaned  on  call  in  New  York  during 
the  latter  part  of  December  at  the  unprecedented  rate  of 
f  of  one  per  cent.  A  revival  on  the  stock  market  followed, 
and  a  large  share  of  the  losses  in  stock  values  during  the 
summer  were  recovered  by  the  end  of  the  year.  But 
the  influence  of  the  extraordinary  failures  during  the  acute 
period  of  the  crisis,  and  the  burden  of  silver  obligations 
which  had  been  issued  by  the  Government  since  1878,  still 

^  Annual  Supplement,  The  Commercial  and  Financial  Chronicle,  p.  2, 
Financial  Review,  1894. 


THE   CRISIS  OF  1893  109 

remained,  and  marked  out  a  precarious  future  both  for  the 
Treasury  and  for  the  trade  and  industry  of  the  country. 
It  is  not  necessary,  however,  to  enter  into  these  subsequent 
years  of  trade  and  industrial  stagnation,  and  of  Govern- 
ment fiscal  and  monetary  difficulty.  The  movements  which 
culminated  in  the  financial  and  industrial  breakdown 
during  the  summer  of  1893  have  already  been  traced  in 
considerable  detail.  The  nature  and  extent  of  the  cata- 
strophe have  also  been  described.  Consequently  the  object 
of  the  investigation  has  been  attained  since  a  position  has 
now  been  reached  where  a  conclusion  may  be  safely  drawn 
as  to  the  cause  of  the  crisis. 


(^ 


CHAPTER   VIII 

THE   CAUSE   OF  THE   CRISIS   OF   1893 

The  Crisis  of  1893  cannot  be  ascribed  to  a  Continued  Operation  of  the  Forces 
which  caused  the  Panic  of  1890  in  the  United  States.  —  During  the  Period 
1891-93  Financial  and  Industrial  Conditions  in  Great  Britain,  Germany, 
and  France  showed  a  Healthy  Development.  —  Hence  the  Crisis  of  1893  in 
the  United  States  did  not  arise  from  any  Difficulties  Abroad.  —  The  Crisis  of 
1893  was  Local  in  its  Occurrence  and  Cause.  —  It  was  not  due  to  an  Ex- 
tension of  Mercantile  and  Industrial  Credits  or  to  a  Scarcity  of  Money  in  the 
United  States.  —  It  was  a  Monetary  Crisis  caused  by  Widespread  Appre- 
hension as  to  the  Fixity  of  the  Gold  Standard  of  Payments. 

In  attempting  to  reach  a  decision  as  to  the  cause,  or 
causes,  of  the  crisis  of  1893  in  the  United  States,  it  is  evi- 
dent, in  the  first  place,  that  the  crisis  of  1S9.Swag  not  rliif^_ 
to  a  continuation  of  those  forces  which  brought  about  the 
panic  in  this  country  durino;  the  autumn  of  1890.  The 
stringency  in  the  American  money  market,  the  collapse  of 
stock  values,  and  the  resultant  industrial  and  financial 
failures  in  the  United  States  during  that  year,  as  already 
seen,  were  a  reflection  of  the  state  of  affairs  which  had  been 
precipitated  in  Great  Britain  by  English  speculation  in 
Argentina  and  other  countries.  In  the  fall  of  1890  Great 
Britain,  in  the  height  of  her  distress,  found  it  necessary  to 
recall  part  of  the  funds  which  she  had  invested  in  American 
railroads,  and  to  sell  in  this  country  part  of  her  holdings  of 
American  and  other  negotiable  securities. 

But  the  necessity  for  this  forced  sale  of  securities  in  the 
United  States  by  British  investors,  as  already  pointed  out', 
had  soon  ceased.^  The  combined  action  of  the  Bank  of 
England  and  the  financial  houses  of  London  in  guarantee- 
ing the  assets  of  the  firm  of  Baring  Brothers  and  in  freely 
extending  bank  accommodations  prevented  a  severe  panic 

»  See  p.  79. 


THE   CAUSE   OF  THE   CRISIS  OF   1893         111 

in  Great  Britain.  A  large  measure  of  confidence  was  soon 
restored,  and  loans  were  obtainable  on  easy  terms.  By  the 
first  of  April,  1891,  the  discount  rate  of  the  Bank  of  Eng- 
land had  been  reduced  to  3  per  cent.  In  June,  1891,  the 
rate  fell  to  2|  per  cent.,  and  the  average  for  the  entire  year 
was  Sj^j  per  cent.  The  average  market  rate  for  the  year  was 
1  y^j-  per  cent,  lower  than  the  rate  of  the  Bank  of  England. 
Under  these  conditions  British  investors  and  financial  houses 
could  easily  obtain  loans  on  gilt-edged  securities,  and  were 
not  compelled,  therefore,  to  sell  securities  in  the  United 
States  in  order  to  meet  their  own  financial  necessities. 
Moreover,  after  the  immense  grain  crop  in  the  United 
States  during  1891,  as  already  indicated,  gold  was  imported 
from  Great  Britain  by  the  United  States.  In  the  autumn 
of  1891  American  railroad  stocks  and  bonds  were  also 
favored  purchases  on  the  London  Stock  Exchange,  and  at 
the  close  of  that  year  the  entire  list  of  American  railroad 
securities  showed  an  increase  in  value  as  compared  with 
the  closing  quotation  of  the  year  1890,  ranging  from  four  to 
twenty  per  cent.^  Had  the  currency  situation  in  the  United 
States  been  sound  at  that  date,  there  would  have  been  no 
further  recall  of  British  capital  or  return  of  American 
securities  by  British  investors.  It  is  true  that  during  the 
two  subsequent  years,  as  already  seen,  there  was  a  con- 
stantly growing  tendency  on  the  part  of  Great  Britain  and 
other  foreign  countries  to  realize  on  their  investments  in 
the  United  States.^  But  the  sale  of  securities  by  foreigners 
in  this  country  and  the  outflow  of  gold  from  the  United 
States  during  these  years  was  due  to  a  set  of  forces  entirely 
different  from  those  which  caused  the  return  of  American 
securities  in  1890  by  British  investors.  In  1890  British 
holders  of  American  securities  were  forced  to  adopt  this 
policy  in  order  to  realize  funds  to  meet  their  own  obliga- 

^  Annual  Supplement,  The  Economist.  (London),  vol.  50  (February  20, 
1892),  p.  3G,  Commercial  History  and  Review  of  1891. 
2  See  p.  89. 


112       THE  CAUSES  OF  THE  PANIC   OF   1893 

tions;  during  the  subsequent  years,  1891-93,  they  were 
constrained  to  sell  American  securities  by  the  fear  that  the 
United  States  would  be  unable  to  maintain  gold  payments. 
The  Baring  failure,  in  short,  and  the  consequent  liquidation 
in  Great  Britain  had  no  influence  upon  conditions  in  the 
United  States  after  the  early  part  of  the  year  1891,  and  the 
financial  collapse  in  the  United  States  during  1893  cannot 
possibly  be  ascribed  to  a  continued  operation  of  the  causes 
which  were  responsible  for  the  panic  of  1890  in  this  country. 

It  is  equally  apparent,  in  the  second  place,  that  the  crisis 
of  1893  did  not  arise  from  any  other  causes  which  had  their 
origin  outside  of  the  United  States.  This  conclusion  is 
incontrovertible,  for  the  reason  that  financial  and  industrial 
conditions  in  other  commercial  nations  during  the  three 
years,  1891-93,  were  not  marked  by  any  developments 
which  could  have  possibly  reacted  disastrously  upon  this 
country.  On  the  contrary,  foreign  countries  during  this 
period  suffered  severely  from  the  state  of  affairs  in  the 
United  States. 

Industrial  and  financial  affairs  in  Great  Britain  during 
the  three  years,  1891-93,  were  conducted  with  such  caution 
and  conservatism  as  to  contrast  sharply  with  the  previous 
period  of  reckless  speculation.  The  confidence  of  investors 
in  domestic  enterprises  was  weakened  by  the  discovery  of 
the  rash  and  corrupt  financial  practices  which  came  to 
light  through  the  publicity  attached  to  the  liquidation  of 
the  numerous  trust  companies  and  other  concerns  which 
had  figured  so  prominently  in  the  speculative  movement 
that  had  absorbed  such  a  large  amount  of  the  savings  of 
the  public  in  the  years  preceding  1890.  At  the  same  time 
the  growing  apprehension  in  Great  Britain  after  1891  over 
the  currency  situation  in  the  United  States,  the  default  of 
the  Uruguayan  Government  in  1892,  the  political  revolution 
in  Brazil  in  1893,  the  development  of  a  banking  crisis  in 
Australia  in  the  same  year,  together  with  the  continued 
state  of  uncertainty  relative  to  Argentine  finances,  also  had 


THE   CAUSE   OF  THE   CRISIS  OF   1893         113 


the  effect  of  impairing  the  confidence  of  British  investors 
in  foreign  industrial  and  financial  undertakings.  They 
refused  to  place  their  funds  in  any  investments  except 
first-class  securities.  As  a  consequence  the  amount  of  new 
capital  commitments  in  Great  Britain  steadily  decreased.^ 
Although  the  discount  rates  were  low,^  the  stock  market 
was  depressed,  and  there  was  an  entire  absence  of  specula- 
tion. 

This  financial  depression  was  strongly  reflected  in  the 
domestic  industry  of  the  United  Kingdom.  The  countries 
of  Central  and  South  America  were  unable  to  get  the  credit 
which  they  had  formerly  enjoyed  in  London,  and  conse- 
quently were  forced  greatly  to  lower  their  purchases  of 
British  goods.  The  market  for  British  commodities  in  the 
United  States  was  also  curtailed  by  the  prohibitive  rates 
of  the  McKinley  tariff  law,  and  the  industrial  and  financial 
crash  in  this  country  during  1893.  On,  account  of  the  depres- 
sion existing  in  Germany  and  France,  those  countries  also 
reduced  their  purchases  in  Great  Britain.  The  foreign 
trade  of  the  United  Kingdom  during  the  period  1890-93 
steadily  declined,  and  it  was  not  until  the  year  1895  that 
any  pronounced  upward  movement  developed.^ 

*  The  total  capital  created  and  issued  in  Great  Britain  during  the 
four  years  1890-93  was  as  follows  : 

1890 £142,565,000 

1891 104,594,910 

1892 81,137,177 

1893 49,141,188 

*  The  average  discount  rate  of  the  Bank  of  England,  and  the  average 
market  rate  during  the  years  1890-93  was  as  follows  : 


Bank  of  England. 
Per  Cent. 

Market. 
Per  Cent. 

1890 

4/10/  4 
3/  5/11 
2/  9/11 
3/   1/  4 

3/13/11 

2/10/   0 
1/  9/   5 
2/  2/  0 

1891 

1892 

1893 

^  The  foreign  trade  situation   in  Great  Britain  during  the  period 


114        THE   CAUSES   OF  THE  PANIC   OF   1893 

This  reduction  in  the  volume  of  foreign  trade,  as  a  matter 
of  course  was  attended  by  a  decreased  activity  in  domestic 
trade  and  industry.^  Although  the  volume  of  interior  trade 
was  maintained,  prices  were  lower  and  profits  smaller. 
The  entire  period  1891-93  in  Great  Britain,  in  short,  was 
marked  by  the  continued  effort  to  liquidate  past  losses,  to 
avoid  future  excesses,  and  to  conduct  financial  and  indus- 
trial operations  on  a  safe  and  conservative  basis.  These 
efforts  were  in  the  main  successful.  Trade  and  industry, 
in  view  of  the  many  adverse  influences  which  they  had  to 
encounter,  both  at  home  and  abroad,  made  a  remarkably 
good  showing,  and  met  with  no  serious  disasters.  Each 
year  after  1890  the  financial  structure  was  placed  on  a 
more  sound  and  solid  basis,  and  the  movement  away  from 
the  disastrous  conditions  which  had  been  precipitated  by 
the  financial  collapse  in  1890  was  steadily  maintained.^ 

Conditions  similar  to  those  in  Great  Britain  prevailed  in 
Germany.  The  reckless  speculation  in  that  country  which 
culminated  in  the  financial  collapse  of  1889  was  followed 
by  financial  and  industrial  depression  up  to  the  close  of  the 
year  1893.  In  a  previous  chapter  it  was  ascertained  that  the 
year  1890  in  Germany  was  marked  by  a  decline  in  stock 

1890-93  appears  in  the  following  table,  which  shows  the  increase  or  de- 
crease per  cent,  of  the  volume  of  foreign  trade  as  compared  with  previous 
years; 


Total  Imports  and 
Exports. 
Per  Cent. 

Exports  of 

Home  Produce. 

Per  Cent. 

1890 

1891  

0.39  decrease 
0.25  decrease 
1.17  decrease 
1.68  decrease 

0.51  decrease 
5.30  decrease 

1892 

3.43  decrease 

1893 

2.10  decrease 

^  London  Bankers'  Clearing-House  returns  decreased  from  £7,801,- 
048,000  in  1890  to  £6,478,013,000  in  1893.  Railroad  trafEc  receipts 
were  reduced  from  £32,902,000  in  1891  to  £30,632,900  in  1893.  A  part 
of  the  decrease  in  1893,  however,  was  due  to  mining  strikes  which  cur- 
tailed shipments  of  coal. 

^  Annual  Supplement,  The  Economist  (London),  vols.  1-lii,  Commer- 
cial History  and  Review,  1891-93, 


THE  CAUSE   OF  THE   CRISIS  OF   1893        115 

values  and  a  liquidation  of  past  excesses.^  During  the 
three  subsequent  years  this  process  continued.  The  taste 
for  capital  adventure  was  lost.  The  public  was  exceedingly 
timid  about  placing  its  funds  in  new  enterprises,  and  only 
first-class  securities  were  purchased.  Almost  all  descrip- 
tions of  stocks  and  bonds  decreased  in  value.  Conse- 
quently there  was  a  steady  reduction  in  the  amount  of  Ger- 
man capital  commitments,  and  in  the  number  and  total 
capitalization  of  joint-stock  companies  organized.^  Idle 
funds  accumulated  in  the  banks,  and  the  rates  of  discount 
were  low.^  In  the  domain  of  trade  and  industry  this  finan- 

1  See  p.  69. 

^  The  total  capital  commitments  in  Germany  during  the  period 
1890-94  was  as  follows.  From  a  comparison  of  the  figures  it  will  be  seen 
that  there  was  a  marked  decrease  during  the  three  years  1889-92,  and 
an  upward  movement  commencing  with  the  year  1893. 

TOTAL  CAPITAL  COMMITMENTS   IN   GERMANY. 


1889 
1890 
1891 
1892 
1893 
1894 


Million  Marks. 


1745 
1520 
1217 
1016 
1266 
1289 


Practically  the  same  tendency  is  evident  from  a  comparison  of  the 
number  and  capitalization  of  joint-stock  companies  organized  dinging 
the  same  period: 


Number  of 
Companies. 

Total  Capital 
(Million  Marks). 

1889 

360 
236 
160 
127 
95 
92 

402.54 

1890   

270.99 

1891 

90.24 

1892     

79.82 

1893         

77.26 

1894           

88.26 

Le  Marche  Financier,  1894-95,  A.  Raffalovich,  pp.  107-108. 

^  The  average  bank  rate  of  discount  at  Berlin  was  3.81  per  cent,  in 
1890,  3.09  per  cent,  in  1891,  1.79  per  cent,  in  1892,  3.21  ]icr  cent,  in 
1893,  and  1.77  per  cent,  in  1894.  —  Le  Marche  Financier  en  1894,  p.  113. 


116        THE  CAUSES  OF  THE  PANIC   OF   1893 

cial  prostration  of  the  country  was  severely  felt,  and  was 
evidenced,  as  in  Great  Britain,  by  lower  prices  and  a  re- 
duced margin  of  profits. 

Even  under  these  adverse  conditions,  however,  industry 
and  business  were  remarkably  well  sustained.  Germany 
suffered  no  shortage  in  her  agricultural  production  during 
the  year  1892,  when  the  wheat  harvests  in  France  and 
Russia  were  almost  total  failures.  The  German  grain  crop 
of  1893  was  also  satisfactory.  Under  these  conditions  the 
work  of  financial  recuperation  was  steadily  pushed  for- 
ward. Losses  were  written  off,  over-commitments  of  cap- 
ital were  reduced,  and  on  every  side  a  general  policy  of 
retrenchment  was  pursued.  The  result  was  that  German 
domestic  trade  and  industry  gave  evidence  of  a  revival  as 
early  as  1893,  and  during  the  following  year  there  was  an 
increase  in  foreign  and  interior  trade,  and  a  general  move- 
ment toward  more  prosperous  conditions.  Railroad  traffic 
receipts  were  better,  bank  clearings  were  larger,  the  volume 
of  capital  emissions  was  greater,  and  bank  and  industrial 
stocks  were  quoted  at  higher  prices.^  Germany,  in  short, 
during  the  latter  half  of  1893  began  to  free  herself  from  the 
liquidation  of  the  previous  three  years,  and  to  enter  upon 
a  period  of  unchecked  prosperity. 

The  financial  and  industrial  situation  in  France  during 
the  period  1891-93  was  somewhat  different  from  that  in 
Great  Britain  and  Germany,  for  the  reason,  as  already 
seen,  that  France  had  fortunately  been  prevented  by  the 
failure  of  the  copper  syndicate  and  the  Panama  Canal 
Company  from  entering  into  the  reckless  speculation  which 
characterized  the  German  and  English  financial  situation 
during  the  years  immediately  preceding  1890.  Conse- 
quently there  was  no  heavy  liquidating  movement  in  France 
after  that  year  such  as  prevailed  in  Great  Britain  and  Ger- 
many. Moreover,  during  these  same  years,  French  trade 
and  industrial  movements  were  depressed,  partly  by  the 

*  Le  Marche  Financier  en  1894,  Le  Marche  de  Berlin,  pp.  83-124. 


THE   CAUSE   OF  THE  CRISIS  OF   1893        117 

refusal  of  French  investors  to  place  their  capital  in  new 
enterprises,  and  partly  by  the  eflfect  of  adverse  conditions 
which  existed  in  foreign  countries.  At  the  same  time  there 
were  no  evidences  of  any  speculation  or  of  the  commitment 
of  capital  in  hazardous  undertakings.  The  Paris  Bourse 
was  firm,  and  more  activity  was  displayed  than  at  London 
or  Berlin.  Financial  institutions  were  in  excellent  condi- 
tion, large  amounts  of  idle  funds  were  accumulated,  and  the 
rates  of  discount  were  low.  The  condition  of  trade  and 
industry  also  was  not  of  a  nature  to  cause  serious  anxiety. 
Toward  the  close  of  the  year  1892  there  was  a  change  for 
the  better  Encouraged  by  a  similar  movement  in  England, 
French  investors  seemed  to  regain  confidence,  and  em- 
barked in  extensive  mining  operations  in  South  Africa. 
During  the  following  year  large  issues  of  Government 
securities  were  followed  by  the  development  of  an  upward 
movement  in  prices  on  the  Paris  Bourse.  The  timidity 
of  investors  and  speculators  disappeared.  Foreign  and 
domestic  trade  also  showed  decided  improvement,  and 
a  general  movement  toward  more  prosperous  conditions 
was  inaugurated.^ 

From  this  brief  summary  of  financial  and  industrial  con- 
ditions in  Great  Britain,  France,  and  Germany  during  the 
period  1890-93  it  is  clearly  evident,  therefore,  that  the 
crisis  of  1893  in  the  United  States  could  not  have  been  due 
to  any  difficulties  abroad.  The  general  situation  in  Great 
Britain  and  Europe  during  these  years  was  marked  by  a 
steady  upward  movement  from  a  condition  of  financial  de- 
pression to  one  of  prosperity.  Germany  and  France  at  the 
close  of  1893  were  entering  upon  a  trade  and  industrial 
revival.  Great  Britain  followed  their  lead  in  the  early  part 
of  the  year  1894.  Consequently  there  were  no  conditions 
in  these  countries  which  were  analogous,  or  had  any  causal 
connection  with  the  financial  crisis  in  the  United  States. 
The  conclusion  is  irresistible  that  the  disastrous  break- 

*  Le  Marche  Financier  en  1894,  pp.  1-26. 


118        THE   CAUSES  OF  THE  PANIC  OF  1893 

down  in  the  United  States  during  the  summer  of  1893  was 
local,  not  only  in  its  occurrence,  but  also  in  its  cause,  or 
causes,  and  that  it  is  not  necessary  to  go  beyond  the 
borders  of  this  country  in  search  of  an  explanation  of  the 
calamity. 

But  what  was  the  local  and  the  true  cause  of  the  crisis  of 
1893  in  this  country  ?  Perhaps  it  has  already  been  inferred 
from  the  review  of  developments  in  the  United  States 
during  the  years  preceding  1893.  In  the  light  of  these 
developments,  the  financial  breakdown  in  1893  cannot 
be  said  to  have  been  due  to  a  scarcity  of  moneyin  the 
United  States  at  that  time,  for  the  Silver  Act  of  18*78  had 
increased  the  available  circulation  $378,000,000,  m  round_ 
numbers,  and  after  1890  the  Sherman  Law  added  some- 
thing  Ii^e  $50,000,000  annually  to  the  circulating  medium 
of  the  country.  During  the  entire  period  1878-93  the 
amount  of  money  m  circulation  more  ttian  doubled.^  Cori^ 
sequenjl^  the  money  supply  was  ample.  On  the  other 
han37  it  cannot  be  maintained  that  the  crisis  of  1893  was 
caused  by  an  extension  of  mercantile  credits  such  as 
brought  about  the  disastrous  collapse  of  1873,  for  it  has 
already  been  pointed  out  ^  that  business  houses  and  indus- 
trial establishments  during  the  period  1891-93,  instead  of 
extending,  were  curtailing  their  operations,  and  were 
arranging  their  plans  in  the  expectation  of  a  breakdown 
in  the  financial  machinery  of  the  country.  They  could  not 
have  engaged  in  any  extended  or  hazardous  activities  if 
they  had  been  inclined  to  do  so,  for  the  reason,  as  already 
seen,^  that  very  little,  if  any,  foreign  capital  was  obtainable 
for  investment  in  the  United  States  after  1891,  and  Ameri- 
can capital  likewise  refused  to  enter  into  doubtful  financial 
or  industrial  undertakings.  So  far  as  the  withdrawal  of 
foreign  and  domestic  funds,  however,  brought  about  in- 
dustrial and  business  disaster,  it  was  not  a  direct  cause 

*  Report  of  the  Secretary  of  the  Treasury,  1893,  p.  cxv. 
'  See  p.  105.  '  See  p.  105  ct  seq. 


THE  CAUSE  OF  THE   CRISIS  OF   1893         119 

of  the  crisis,  but  only  the  result  which  flowed  out  of  the 
operation  of  the  primary  and  fundamental  cause. 

This  cause  to  which  the  crisis  of  1893  is  directly  and 
wholly  attributable  consisted  of  a  widespread  fear,  both  at 
home  and  abroad,  that  the  United  IStates  would  not  be  able 
to  maintain  a  gold  standard  of  payments.  The  very  nature 
of  the  crisis  itself  of  1893  bears  out  this  conclusion.  It 
was  essentially  a  monetary  crisis,  and  its  typical  teature 
consisted  in  the  numerous  failures  of  banks  and  financial 
mstitutions.  Moreover,  the  precipitation  of  and  the 
recovery  from  the  crisis  furnishes  additional  evidence  to 
bear  out  the  foregoing  claim.  The  beginning  of  the  crisis, 
as  already  seen,  was  marked  by  the  decline  of  the  Treas- 
ury gold  reserve,  on  April  22,  below  the  $100,000,000 
limit ;  the  ending  of  the  resultant  industrial  and  financial 
chaos  dated  from  the  repeal,  on  August  28,  of  the  Silver 
Law  of  1890. 

The  apprehension  in  1893  as  to  the  fixity  of  the  gold 
standard  of  payments  arose  indirectly  out  of  the  silver 
agitation  and  legislation  during  the  period  1878-90,  and 
was  directly  traceable  to  the  operation  of  the  Sherman  Silver 
Purchase  Law  of  1890.  For  seventeen  years,  1878-90,  the 
gold  standard  of  payments  was  constantly  threatened,  and 
the  crisis  of  1893  was  practically  the  culmination  of  this 
long  period  of  uncertainty.  Under  the  operation  of  the 
Silver  Act  of  1878,  as  already  seen,  the  country  received 
a  serious  shock  to  its  confidence  in  the  fixity  of  the  gold 
standard.  During  the  two  years,  1884-86,  when  the  silver 
issues  of  the  country  became  redundant,  the  distrust  in  the 
ability  of  the  Treasury  to  maintain  gold  payments  became 
so  great  that  gold  was  withheld  in  the  payments  of  customs 
duties,  and  silver  certificates  worked  off  on  the  Treasury. 
Additions  to  the  Treasury's  supply  of  gold  were  thus  cut 
off,  and  the  gold  reserve  declined  to  $115,000,000  (see 
Chart  II,  p.  93).  As  a  consequence,  apprehension  as  to 
the  maintenance  of  gold  payments  became  widespread, 


120       THE  CAUSES  OF  THE  PANIC   OF   1893 

and  a  panic  was  narrowly  averted.*  As  it  was,  the  stream 
of  silver  was  only  prevented  from  overflowing  the  Treasury 
by  the  action  of  the  Treasury  officials  in  employing  arti- 
ficial devices  to  create  a  vacuum  in  the  circulation.  Con- 
fidence was  thus  temporarily  restored,  and  during  the 
period  1886-90  gold  payments  were  made  into  the 
Treasury.  The  Treasury  gold  reserve  increased  by  the 
year  1890  to  $195,000,000  (see  Chart  II,  p.  93). 

The  advocates  of  the  free  coinage  of  silver,  however, 
held  the  balance  of  political  power  during  the  first  session 
of  the  Fifty-first  Congress,  and  as  a  result  of  their  agitation 
the  Sherman  Law  was  passed,  and,  as  already  shown, 
almost  doubled  the  amount  of  silver  obligations  annually 
issued  by  the  Government.  The  country  might  have  pro- 
gressed safely  under  the  Act  of  1878,  but  the  question  of  the 
fixity  of  the  gold  standard  was  opened  afresh  by  the  opera- 
tion of  the  Sherman  Law.  The  currency  of  the  country  soon 
became  redundant,  and,  as  had  hflppenedjn  the  two  years 
1884-86,  silver  certificates  and  Treasurv  notes  were  used 
in  the  payments  of  public  dues,  while  gold  was  hoarded. 
Consequently  the  Treasury  gold  reserve  rapidlv  declined^ 
and  fear  for  the  maintenance  of  the  standard  again  arose. 
Because  its  supplies  of  gold  were  decreased  by  the  displace- 
ment of  gold  by  silver  currency  in  the  Government  revenues, 
the  Treasury  adopted  the  policy  of  hoarding  gold  and 
making  its  payments  through  the  New  York  Clearing- 
House  in  the  form  of  legal -tender  notes.  This  action  led  to 
a  further  impairment  of  confidence.  Foreign  investors  and 
exporters  saw  the  danger  in  the  situation  even  before  the 
people  of  this  country,  and  began  to  withdraw  the  funds 
wliich  they  had  invested  in  this  coiint]-y  finring  thp  pepod 
1886-90.  Moreover,  they  called  for  the  payment  of  trade 
balances  m  gold-  Gold  was,  therefore,  demanded  for  export. 
B^  the  banks  in  the  United  States  were  hoarding  gold,  _ 
and  gold  for  export  could  practically  be  obtained  onlyby 
^  See  p.  22  et  seq. 


THE  CAUSE  OF  THE   CRISIS  OF   1893         121 

the  presentation  of  legal-tender  notes  at  the  Treasury  for 
redemption,  ihis  operation  caused  a  further  inroad  upon 
tiie  i'reasury  gold  reserve.  Larger  amounts  of  funds  were 
drawn  from  the  country,  and  increasing  amounts  of  gold 
flowed  out  of  the  Treasury  in  the  redemption  of  legal- 
tenders.  The  limit  was  finally  reached  on  April  22,  1893, 
when  the  gold  reserve  fell  below  the  danger-line.  At  that 
time  the  fears  of  the  public  over  the  question  of  the  standard 
of  payments  reached  a  climax. 

As  soon  as  it  became  known  that  the  gold  reserve  of  the 
Treasury  had  declined  below  the  danger-point  of  $100,000,- 
000  the  apprehension  relative  to  the  fixity  of  the  standard 
developed  into  a  panic.  There  was  an  immediate  rush  to 
realize  on  all  descriptions  of  property  before  the  gold 
standard  was  abandoned.  The  public  were  afraid  of  the 
adoption,  as  the  standard  of  payments,  of  a  silver  dollar 
which  was  worth  only  fifty  cents  in  gold.  At  the  same  time 
overwhelming  demands  were  made  upon  the  banks  to  pay 
their  accounts  in  gold  or  specie,  and  the  cash  thus  obtained 
by  depositors  was  hoarded  and  the  existing  money  supply 
contracted.  Under  these  conditions  gold  seemed  scarce. 
In  reality  gold  was  only  relatively  scarce  in  comparison 
with  the  abnormal  offering  of  property  for  sale  on  account 
of  the  fear  of  the  silver  standard.  In  the  face  of  the  uni- 
versal demand,  however,  to  convert  property  into  cash  or 
some  other  liquid  form  of  exchange,  those  having  obliga- 
tions to  meet  found  it  impossible  to  secure  funds,  and  the 
result  was  soon  seen  in  widespread  industrial  and  financial 
disaster.  Distrust  of  the  fixity  of  the  standard  gave  way  to 
unreasoning  panic,  and  it  was  not  until  the  House  of  Re- 
presentativesrepealed  t)ie  hhprm?in  I  i^w  that  the  public 
believed  that  the  gold  standard  was  not  going  to  be  aban- 
doned. With  the  growth  of  this  conviction  confidence  was 
restored  like  magic;  gold  again  flowed  into  the  Treasury, 
and  its  depleted  reserves  were  increased. 

The  fiscal  policy  of  the  Harrison  Administration,  —  the 


122       THE  CAUSES  OF  THE  PANIC   OF   1893 

increase  of  Government  expenditures  and  the  cutting-down 
of  Government  receipts  from  customs, —  by  weakening  the 
resources  of  the  Treasury,  provided  favorable  conditions 
for  the  play  of  the  fundamental  cause  of  the  crisis,  and  thus 
hastened  the  precipitation  of  the  disaster.  The  withdrawal 
of  the  enormous  amounts  of  foreign  funds  during  the  years 
1891-93,  which  had  been  invested  in  the  United  States 
during  the  prosperous  period  1886-90,  also  rapidly  drained 
the  Treasury  of  its  gold  reserves  through  the  necessity  of 
providing  gold  for  export.  This  process,  however,  as 
already  shown,  was  not  itself  a  cause,  but  on  the  contrary- 
was  a  consequence  of  the  operation  of  the  true  cause  of  the 
crisis  of  1893.  The  fundamental  and  effective  cause  of  the 
crisis  of  that  year  was  the  fear  as  to  the  fixity  of  the  gold 
standard,  or,  in  other  words,  the  apprehension,  which  was 
prevalent  both  in  this  country  and  abroad,  that  the  United 
States  would  be  unable  to  maintain  the  gold  standard 
of  payments. 


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